SECURITIES
      PURCHASE AGREEMENT

    


    THIS
      SECURITIES PURCHASE AGREEMENT,
      dated
      as of February 26, 2007 (this “Agreement”), is entered into 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 individual or entity named on an executed counterpart of the signature
      page hereto (each such signatory is referred to as a “Buyer”) (each agreement
      with a Buyer being deemed a separate and independent agreement between the
      Company and such Buyer, except that each Buyer acknowledges and consents to
      the
      rights granted to each other Buyer [each, an “Other Buyer”] under such agreement
      and the Transaction Agreements, as defined below, referred to
      therein).

    


    WITNESSETH:

    


    WHEREAS,
      the
      Company and the Buyer are executing and delivering this Agreement in reliance
      upon the exemption from securities registration for offers and sales to
      accredited investors afforded, inter alia,
      by Rule
      506 under Regulation D (“Regulation D”) as promulgated by the United States
      Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
      as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act;
      and

    


    WHEREAS,
      the
      Buyer wishes to lend to the Company, subject to and upon the terms and
      conditions of this Agreement and acceptance of this Agreement by the Company,
      the Purchase Price (as defined below), the repayment of which will be
      represented by 8% Convertible Debentures Series 07-01 of the Company (the
“Convertible Debentures”), which Convertible Debentures will be convertible into
      shares of Common Stock, $0.001 par value per share, of the Company (the “Common
      Stock”), upon the terms and subject to the conditions of such Convertible
      Debentures, together with the Warrants (as defined below) exercisable for the
      purchase of shares of Common Stock;

    


    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 parties agree as follows:

    


    1. AGREEMENT
      TO PURCHASE; PURCHASE PRICE.

    


    a. Purchase.

    


    (i) Subject
      to the terms and conditions of this Agreement and the other Transaction
      Agreements, the undersigned Buyer hereby agrees to loan to the Company the
      principal amount set forth on the Buyer’s signature page of this Agreement (the
“Purchase Price”), out of the aggregate amount being loaned by all Buyers of
      $4,075,000 (the “Aggregate Purchase Price”).

    


    (ii) The
      Purchaser’s signature page shall indicate whether the Debenture and Warrant to
      be issued by the Company and to be purchased by the Purchaser are (i) both
      the
      Class A forms of those securities or (ii) both the Class B forms of those
      securities. Unless specified as to Class or the context otherwise requires,
      each
      reference in the Transaction Agreements to (x) “Debentures” refers to both the
      Class A and the Class B Debentures and (y) “Warrants’ refers to both the Class A
      and the Class B Warrants. 

     

    (ii) The
      obligation to repay the loan from the Buyer shall be evidenced by the Company’s
      issuance of one or more Convertible Debentures to the Buyer in the aggregate
      principal amount equal to the Purchase Price (the Convertible Debentures issued
      to the Buyer, the “Debentures”). Each Debenture (i) shall provide for a
      Conversion Price (as defined below), which price may be adjusted from time
      to as
      provided in the Debenture, and (ii) shall have the terms and conditions of,
      and
      be substantially in the form attached hereto as, Annex
      I-A
      or
Annex
      I-B,
      as the
      case may be.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (iii) On
      the
      Closing Date (as defined below), the Purchase Price shall be paid by the Buyer
      and the Company will deliver the relevant Certificates (as defined below) to
      the
      Escrow Agent, as provided in Section 1(c) hereof.

    


    (v) The
      loan
      to be made by the Buyer and the issuance of the Debentures and the Warrants
      (collectively, the “Purchased Securities”) to the Buyer are sometimes referred
      to herein and in the other Transaction Agreements as the purchase and sale
      of
      the Debentures and the Warrants. 

    


    b. Certain
      Definitions. As
      used
      herein, each of the following terms has the meaning set forth below, unless
      the
      context otherwise requires:

    


    “Affiliate”
      means, with respect to a specific Person referred to in the relevant provision,
      another Person who or which controls or is controlled by or is under common
      control with such specified Person.

    


    “Payment
      Conversion Price” means the lower of (i) the Prepayment Conversion Price or (ii)
      the Lowest Fixed Conversion Price.

    


    “Buyer
      Control Person” means each director, executive officer, promoter, and such other
      Persons as may be deemed in control of the Buyer pursuant to Rule 405 under
      the
      1933 Act or Section 20 of the 1934 Act (as defined below).

    


    “Buyer’s
      Allocable Share” means the fraction, of which (i) the numerator is the Buyer’s
      Purchase Price and (ii) the denominator is the Aggregate Purchase
      Price.

    


    “Certificate
      of Incorporation” means the certificate of incorporation, articles of
      incorporation or other charter document (howsoever denominated) of the Company,
      as amended to date. 

     

    “Certificates”
      means the (x) the original ink-signed Debentures and (y) the original ink-signed
      Warrants, each duly executed by the Company and issued in the name of the Buyer
      on the Closing Date.

    


    “Closing
      Date” means the date of the closing of the purchase and sale of the Purchased
      Securities.

    


    “Closing
      Price” means the 4:00 P.M. closing bid price of the Common Stock on the
      Principal Trading Market on the relevant Trading Day(s), as reported by the
      Reporting Service for the relevant date.

    


    “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.

    


    “Company
      Counsel” means Richardson & Patel LLP.

    


    “Company
      Principal’s Agreement” has the meaning ascribed to in Section 4(h).

    


    “Company's
      SEC Documents” means the Company’s filings on the SEC’s EDGAR system which are
      listed on Annex
      VI
      annexed
      hereto, to the extent available on EDGAR or otherwise provided to the Buyer
      as
      indicated on said Annex VI.

    


    “Conversion
      Certificates” means certificates representing the Conversion Shares or the
      Warrant Shares, as the case may be.

    


    “Conversion
      Date” means the date a Holder submits a Notice of Conversion, as provided in the
      Debentures.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Conversion
      Price” means, (i) with respect to a voluntary conversion by the Holder of the
      Debenture or a Mandatory Conversion (as defined in the Debentures), the
      Voluntary Conversion Price and (ii) with respect to all other conversions,
      the
      Payment Conversion Price.

    


    “Conversion
      Shares” means the shares of Common Stock issuable upon conversion of the
      Debentures and/or in payment of accrued interest, as contemplated in the
      Debentures.

     

    “Converting
      Holder” means the Holder of Debentures or Warrants, as the case may be, who or
      which has submitted a Notice of Conversion (as contemplated by the Debentures)
      or a Notice of Exercise (as contemplated by the Warrants).

    


    “Delivery
      Date” has the meaning ascribed to it, as may be relevant, (x) in the Debentures
      (with respect to Conversion Shares), or (y) in the Warrants (with respect to
      Warrant Shares).

    


    "Disclosure
      Annex" means Annex
      VIII to
      this
      Agreement; provided, however, that the Disclosure Annex shall be arranged in
      sections corresponding to the identified Sections of this Agreement, but the
      disclosure in any such section of the Disclosure Annex shall qualify other
      provisions in this Agreement to the extent that it would be readily apparent
      to
      an informed reader from a reading of such section of the Disclosure Annex that
      it is also relevant to other provisions of this Agreement.

    


    “Effective
      Date” means the date the Registration Statement covering the Registrable
      Securities is declared effective by the SEC.

    


    “Escrow
      Agent” means Krieger & Prager LLP, the escrow agent identified in the Joint
      Escrow Instructions attached hereto as Annex
      II
      (the
“Joint Escrow Instructions”).

    


    “Escrow
      Funds” means the Purchase Price delivered to the Escrow Agent as contemplated by
      Sections 1(c) and (d) hereof.

    


    "Escrow
      Property" means the Escrow Funds and the Certificates delivered to the Escrow
      Agent, as contemplated by Section 1(c) hereof.

    


    “Exercise
      Price” means the per share exercise price of the relevant Warrant.

    


    “Fixed
      Conversion Price” means $1.00 (as such amount may be adjusted as provided herein
      or in the Debentures).

    


    “Holder”
      means the Person holding the relevant Securities at the relevant
      time.

    


    “Issue
      Date Conversion Share” means, with respect to the Closing Date, the number of
      shares of Common Stock equal to (x) the Purchase Price paid by the Buyer on
      the
      Closing Date, divided by (y) the amount which would have been the Conversion
      Price on such Closing Date, were such date a Conversion Date (without regard
      to
      whether or not the Debentures were convertible on such date in accordance with
      their terms).

    


    “Last
      Audited Date” means December 31, 2005.

    


    “Lowest
      Fixed Conversion Price” means the lowest New Transaction Price (as defined
      below; as that amount may subsequently be adjusted as provided in the Debentures
      or herein).

    


    “Majority
      in Interest of the Holders” means one or more Holders whose respective
      outstanding principal amounts of the Debentures held by each of them, as of
      the
      relevant date, aggregate more than seventy-five percent (75%) of the aggregate
      outstanding principal amounts of the outstanding Debentures held by the Buyer
      and all Other Buyers on that date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Material
      Adverse Effect” means an event or combination of events, which individually or
      in the aggregate, would reasonably be expected to (x) adversely affect the
      legality, validity or enforceability of the Purchased Securities or any of
      the
      Transaction Agreements, (y) have or result in a material adverse effect on
      the
      results of operations, assets, or financial condition of the Company and its
      subsidiaries, taken as a whole, or (z) adversely impair the Company's ability
      to
      perform fully on a timely basis its material obligations under any of the
      Transaction Agreements or the transactions contemplated thereby.

    


    “Material
      Asset” means any asset of the Company and/or of one or more Subsidiaries which
      alone or together with other assets of the Company and/or one or more
      subsidiaries is material to the operations or business of the Company or such
      Subsidiary, individually or in the aggregate; it being understood that any
      proprietary intellectual property owned by the Company or any one or more
      Subsidiaries and the license to the Company or any Subsidiary of any
      intellectual property are conclusively considered to be a “Material Asset”;
      provided, however, that the foregoing shall not be deemed to limit other any
      other assets from being deemed a “Material Assets.”

    


    “Material
      Asset Security Interest” means a security interest in a Material Asset or any
      other right (howsoever denominated) giving a third party an ownership or other
      interest in, or a right to dispose of, such Material Asset.

     

    “Maturity
      Date” has the meaning ascribed to it in the Convertible Debentures.

    


    “New
      Common Stock” means shares of Common Stock and/or securities convertible into,
      and/or other rights exercisable for, Common Stock, which are offered or sold
      in
      a New Transaction.

    


    “New
      Investor” means the third party investor, purchaser or lender (howsoever
      denominated) in a New Transaction.

    


    “New
      Transaction” means, unless consented to by a Majority in Interest of the Holders
      (which consent is in the sole discretion of the Holders and may be withheld
      for
      any reason or for no reason whatsoever),

     

    (i)
      the
      offer or sale of New Common Stock by or on behalf of the Company to a New
      Investor and/or

     

    (ii)
      the
      grant of a security interest in, or the pledge of, shares of the Company’s
      Common Stock or securities convertible into or exercisable for the Company’s
      Common Stock to any other party, or the pledge of such shares or securities
      to
      any other party, whether such grant or pledge is made by the Company or any
      other holder thereof, in connection with a transaction in which the Company
      borrows or is otherwise obligated to pay funds to a third party,

    


    in
      a
      transaction offered or consummated after the date hereof; provided, however,
      that it is specifically understood that the term “New Transaction” (1) unless
      consented to otherwise by a Majority in Interest of the Holders (which consent
      is in the sole discretion of the Holders and may be withheld for any reason
      or
      for no reason whatsoever), includes, but is not limited to, a sale of Common
      Stock or of a security convertible into Common Stock or an equity or credit
      line
      transaction, but (2) does not include (a) the sale of the Purchased Securities
      to the Buyer and the Other Buyers, (b) the issuance of Common Stock upon the
      exercise or conversion of options, warrants or convertible securities
      outstanding on the date hereof, or in respect of any other financing agreements
      as in effect on the date hereof and identified in the Disclosure Annex (provided
      the same is not amended after the date hereof) or in the Company’s SEC Documents
      (provided the same is not amended after the date hereof), (c) the issuance
      of
      New Common Stock pursuant to a non-employee director stock option plan of the
      Company, duly adopted by the shareholders of the Company, the issuance of New
      Common Stock pursuant to a consultants’ stock incentive plan of the Company,
      duly adopted by the shareholders of the Company, provided such plan does not
      contemplate the issuance, in the aggregate, of a number of shares in excess
      of
      five percent (5%) of the number of outstanding shares of Common Stock as of
      the
      date of adoption of such plan, (e) the issuance of Common Stock upon the
      exercise of any options or warrants referred to in the preceding clauses of
      this
      paragraph (provided the same is not amended after the date hereof to an exercise
      price below the highest Exercise Price of any Warrants issued pursuant to any
      of
      the Transaction Agreements), (f) the issuance of stock options or warrants
      to
      employees, officers or directors of the Company, provided that all such shares
      are subject to a Company Principal’s Agreement; provided, however, that such
      shares issued to employees who are not otherwise officers, directors or
      beneficial owners of five percent (5%) or more of the Company’s Common Stock,
      which shares, when added to the shares issued to all other such employees,
      do
      not exceed five percent (5%) of the number of outstanding shares of Common
      Stock
      as of the date of the issuance, do not need to be subject to a Company
      Principal’s Agreement, or (g) the issuance of shares to a Strategic
      Partner.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Payment
      Conversion Price” has the meaning ascribed to in the Debenture.

    


    “Person”
      means any living person or any entity, such as, but not necessarily limited
      to,
      a corporation, partnership or trust.

    


    “Placement
      Agent” means Pacific Ridge Capital, LLC.

    


    “Prepayment
      Conversion Price” means (i) the VWAP for the five (5) Regular Trading Days
      ending on the Trading Day immediately before the Prepayment Date or the relevant
      Conversion Date, as the case may be, multiplied by (ii) seventy percent
      (70%).

    


    “Prepayment
      Date” has the meaning ascribed to it in the Debentures.

    


    “Principal
      Trading Market” means the Over the Counter Bulletin Board or such other market
      on which the Common Stock is principally traded at the relevant time, but shall
      not include the “pink sheets.”

    


    “Registrable
      Securities” has the meaning ascribed to it in the Registration Rights
      Agreement.

    


    “Registration
      Rights Agreement” means the Registration Rights Agreement in the form annexed
      hereto as Annex
      IV
      as
      executed by the Buyer and the Company simultaneously with the execution of
      this
      Agreement.

    


    “Registration
      Statement” means an effective registration statement covering the Registrable
      Securities.

    


    “Regular
      Trading Day” means the regular trading hours of a Trading Day on the Principal
      Trading Market shall be open for business (as of the date of this Agreement,
      such hours are, for most Trading Days, approximately 9:00 or 9:30AM to
      approximately 4PM Eastern Time; provided, however, that certain Trading Days
      may
      have shorter regular trading hours; and provided, further, that the regular
      trading hours may be subsequently changed for the Principal Trading
      Market).

    


    “Reporting
      Service” means Bloomberg LP or if that service is not then reporting the
      relevant information regarding the Common Stock, a comparable reporting service
      of national reputation selected by a Majority in Interest of the Holders and
      reasonably acceptable to the Company.

    


    “Rule
      144" means (i) Rule 144 promulgated under the 1933 Act or (ii) any other similar
      rule or regulation of the SEC that may at any time permit Holder to sell
      securities of the Company to the public without registration under the 1933
      Act..

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Securities”
      means the Purchased Securities and the Shares. 

    


    “Shares”
      means the shares of Common Stock representing any or all of the Conversion
      Shares and the Warrant Shares.

    


    “Short
      Sales” means short sales of or any hedging transactions with respect to, the
      Common Stock or sales of put options or similar instruments with respect to
      the
      Common Stock; provided, however, that, for purposes of this Agreement, the
      term
“Short Sale” shall not include sales of the Company’s Common Stock or the sales
      of put option or similar instruments which are executed (i) after the Buyer
      has
      submitted a Notice of Conversion requesting conversion of the Debenture, for
      up
      to the number of shares of Common Stock anticipated to be issued to the Buyer
      as
      a result of such conversion, (ii) after the Buyer has submitted a Notice of
      Exercise with respect to the Buyer’s Warrant or after an Automatic Exercise Date
      (as defined in the Warrant), for up to the number of shares of Common Stock
      anticipated to be issued to the Buyer upon such exercise of the Warrant, and/or
      (iii) on or after a Required Payment Date (as defined in the Debenture), for
      up
      to the number of shares of Common Stock anticipated to be issued to the Buyer
      in
      payment of a Required Payment (as defined in the Debenture).

    


    “State
      of
      Incorporation” means the State of Nevada.

    


    “Strategic
      Partner” means a third party, whether or not affiliated with the Company, as of
      the date hereof, which party (i) is engaged in a business in which the Company
      is or plans to be engaged or a similar or related business, and (ii)
      subsequently purchases (or enters into an agreement to purchase) equity
      securities of the Company (or securities convertible into equity securities
      of
      the Company), if (a) such purchase is made in connection with or accompanied
      or
      followed by one or more of the following: the licensing by the Company of all
      or
      any portion of its technology to such third party, the licensing by such third
      party of all or any portion of its technology to the Company, or any other
      coordination of all or a portion of their respective business activities or
      operations by the Company and such third party or (b) no registration statement
      is filed for such equity securities until after the Final Lock Up Date (as
      defined in Section 4(g) below).

    


    "Subsidiary"
      means, as of the relevant date, any subsidiary of the Company (whether or not
      included in the Company's SEC Documents) whether now existing or hereafter
      acquired or created.

    


    “Trading
      Day” means any day during which the Principal Trading Market shall be open for
      business.

    


    “Transaction
      Agreements” means this Agreement, the Debentures, the Joint Escrow Instructions,
      the Registration Rights Agreement, the Warrants, each Company Principal’s
      Agreement, and the Disclosure Annex and includes all ancillary documents
      executed and delivered pursuant to those agreements.

    


    “Transfer
      Agent” means, at any time, the transfer agent for the Company’s Common
      Stock.

    


    “Voluntary
      Conversion Price” means the lowest of (i) the Fixed Conversion Price, (ii) the
      Lowest Fixed Conversion Price, if any, or (iii) during the pendency of an Event
      of Default (as defined in the Debentures), the Prepayment Conversion
      Price.

    


    “VWAP”
      means the volume weighted average price of the Common Stock on the Principal
      Trading Market for the relevant Regular Trading Day(s), as reported by the
      Reporting Service.

    


    “Warrants”
      means (i) the warrants referred to in Section 4 hereof and (ii) the Added
      Warrants (as defined below), if any. 

     

    “Warrant
      Shares” means the shares of Common Stock issuable upon exercise of the
      Warrants.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Wire
      Instructions” means the Purchase Price Wire Instructions as provided in
Annex
      X
      annexed
      hereto.

    


    c. Form
      of Payment; Delivery of Certificates. 

    


    (i) The
      Buyer
      shall pay the Purchase Price by delivering immediately available good funds
      in
      United States Dollars to the Escrow Agent no later than the date prior to the
      Closing Date.

    


    (ii) Within
      two (2) Trading Days after the Company is notified that the Escrow Agent has
      on
      deposit cleared funds from or on behalf of one or more Buyers an aggregate
      amount equal to the Aggregate Purchase Price and the Company shall have accepted
      the Buyer’s subscription hereunder, but in no event later than the Closing Date,
      the Company will deliver the relevant Certificates for the Debentures and the
      Warrants to the Escrow Agent. Such Certificates shall be held in escrow by
      the
      Escrow Agent until released as provided in the Joint Escrow Instructions.


    


    (iii) By
      signing this Agreement, each of the Buyer 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 Joint Escrow Instructions, all of the provisions of which are
      incorporated herein by this reference as if set forth in full.

    


    d. Method
      of Payment.
      Payment
      into escrow of the Purchase Price shall be made to the Escrow Agent as provided
      in the Wire Instructions (see Annex X).

    


    2. BUYER
      REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
      INVESTIGATION.

    


    The
      Buyer
      represents and warrants to, and covenants and agrees with, the Company, as
      of
      the date hereof and as of the Closing Date, as follows:

    


    a. Without
      limiting Buyer's right to sell the Securities pursuant to an effective
      registration statement or otherwise in compliance with the 1933 Act, the Buyer
      is purchasing the Securities for its own account for investment only and not
      with a view towards the public sale or distribution thereof and not with a
      view
      to or for sale in connection with any distribution thereof.

    


    b. The
      Buyer
      is (i) an “accredited investor” as that term is defined in Rule 501 of the
      General Rules and Regulations under the 1933 Act, (ii) experienced in making
      investments of the kind described in this Agreement and the other Transaction
      Agreements, (iii) able, by reason of the business and financial experience
      of
      its officers (if an entity) and professional advisors (who are not affiliated
      with or compensated in any way by the Company or any of its Affiliates or
      selling agents), to protect its own interests in connection with the
      transactions described in this Agreement and the other Transaction Agreements,
      and to evaluate the merits and risks of an investment in the Securities, and
      (iv) able to afford the entire loss of its investment in the
      Securities.

    


    c. All
      subsequent offers and sales of the Securities by the Buyer shall be made
      pursuant to registration of the relevant Securities under the 1933 Act or
      pursuant to an exemption from such registration.

    


    d. The
      Buyer
      understands that the Securities are being offered and sold to it in reliance
      on
      specific exemptions from the registration requirements of the 1933 Act and
      state
      securities laws and that the Company is relying upon the truth and accuracy
      of,
      and the Buyer's compliance with, the representations, warranties, agreements,
      acknowledgments and understandings of the Buyer set forth herein in order to
      determine the availability of such exemptions and the eligibility of the Buyer
      to acquire the Securities.

    


    e. The
      Buyer
      and its advisors, if any, have been furnished with or have been given access
      to
      all materials relating to the business, finances and operations of the Company
      and materials relating to the offer and sale of the Purchased Securities which
      have been requested by the Buyer, including those set forth in any annex
      attached hereto. The Buyer and its advisors, if any, have been afforded the
      opportunity to ask questions of the Company and its management and have received
      complete and satisfactory answers to any such inquiries. Without limiting the
      generality of the foregoing, the Buyer has also had the opportunity to obtain
      and to review the Company's SEC Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    f. The
      Buyer
      understands that its investment in the Securities involves a high degree of
      risk.

    


    g. If
      the
      Buyer is not a United States person (as defined by Section 7701(a)(30) of the
      Internal Revenue Code, as currently in effect), such Buyer hereby represents
      that it has satisfied itself as to the full observance of the laws of its
      jurisdiction in connection with any invitation to subscribe for the Purchased
      Securities or any use of this Agreement, including (i) the legal requirements
      within its jurisdiction for the purchase of the Purchased Securities, (ii)
      any
      foreign exchange restrictions applicable to such purchase, (iii) any
      governmental or other consents that may need to be obtained, and (iv) the income
      tax and other tax consequences, if any, that may be relevant to the purchase,
      holding, redemption, sale, or transfer of the Securities. The Buyer’s
      subscription and payment for and continued beneficial ownership, if any, of
      the
      Securities will not violate any applicable securities or other laws of the
      Buyer’s jurisdiction.

    


    h. If
      the
      Buyer is an individual, then the Buyer resides in the state or province
      identified in the address of the Buyer set forth on the Buyer’s signature page
      to this Agreement. If the Buyer is a partnership, corporation, limited liability
      company or other entity, then the office or offices of the Buyer in which its
      principal place of business is the address or addresses of the Buyer set forth
      on the Buyer’s signature page to this Agreement.

     

    i. The
      Buyer
      hereby represents that, in connection with the Buyer’s investment or the Buyer’s
      decision to purchase the Securities, the Buyer has not relied on any statement
      or representation of any Person, including any such statement or representation
      by the Company or the Placement Agent or any of their respective controlling
      Persons, officers, directors, partners, agents and employees or any of their
      respective attorneys, except as specifically set forth herein. The Buyer agrees
      that none of (i) any Other Buyer, (ii) any controlling Persons, officers,
      directors, partners, agents, or employees of each respective Other Buyer or
      (iii) any of their respective attorneys shall be liable to the Buyer for any
      action heretofore or hereafter taken or omitted to be taken by any of them
      in
      connection with the purchase of the Purchased Securities or in connection with
      the Securities. Each of the Placement Agent, each Other Buyer and each of their
      respective controlling Persons, officers, directors, partners, agents and
      employees and each of their respective attorneys is a third party beneficiary
      of
      this provision.

    


    j. The
      Buyer
      understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities.

    


    k. This
      Agreement and each of the other Transaction Agreements to which the Buyer is
      a
      party, and the transactions contemplated hereby and thereby, have been duly
      and
      validly authorized by the Buyer. This Agreement has been executed and delivered
      by the Buyer, and this 

    Agreement
      is, and each of the other Transaction Agreements to which the Buyer is a party,
      when executed and delivered by the Buyer (if necessary), will be valid and
      binding obligations of the Buyer enforceable in accordance with their respective
      terms, subject as to enforceability to general principles of equity and to
      bankruptcy, insolvency, moratorium and other similar laws affecting the
      enforcement of creditors' rights generally.

    


    l. During
      the thirty (30) days prior to the execution of this Agreement, neither the
      Buyer
      nor any of the Buyer’s Affiliates has engaged in any Short Sales; provided,
      however, that unless and until the Company has affirmatively demonstrated by
      the
      use of specific clear and convincing evidence that Buyer engaged in Short Sales
      during such period, the Buyer shall be assumed to be in compliance with the
      provisions of this Section 2(l) and the Company shall remain obligated to
      fulfill all of its obligations under the Transaction Agreements; and provided,
      further, that the Company shall under no circumstances be entitled to request
      or
      demand that the Buyer affirmatively demonstrate that it has not engaged in
      any
      such Short Sales during such period as a condition to the Company’s fulfillment
      of its obligations under any of the Transaction Agreements and shall not assert
      the Buyer’s failure to demonstrate such absence of such Short Sales as a defense
      to any breach of the Company’s obligations under any of the Transaction
      Agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    m. The
      Buyer
      has taken no action which would give rise to any claim by any Person for
      brokerage commission, placement agent or finder's fees or similar payments
      by
      Buyer relating to this Agreement or the transactions contemplated hereby. Except
      for such fees arising as a result of any agreement or arrangement entered into
      by the Company without the knowledge of the Buyer (a “Company Fee”) and fees to
      the Placement Agent, the Company shall have no obligation with respect to such
      fees or with respect to any claims made by or on behalf of other Persons for
      fees of a type contemplated in this paragraph that may be due in connection
      with
      the transactions contemplated hereby. Buyer shall indemnify and hold harmless
      the Company, its employees, officers, directors, agents, and partners, and
      their
      respective Affiliates, from and against all claims, losses, damages, costs
      (including the costs of preparation and attorney's fees) and expenses suffered
      in respect of any such claimed or existing fees (other than a Company
      Fee).

    


    3. COMPANY
      REPRESENTATIONS, ETC. The
      Company represents and warrants to the Buyer as of the date hereof and as of
      the
      Closing Date that, except as otherwise provided in the Disclosure Annex or
      in
      the Company’s SEC Documents: 

    


    a. Rights
      of Others Affecting the Transactions. There
      are
      no preemptive rights of any stockholder of the Company, as such, to acquire
      the
      Purchased Securities or the Shares. No other party has a currently exercisable
      right of first refusal which would be applicable to any or all of the
      transactions contemplated by the Transaction Agreements.

    


    b. Status.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Incorporation and has the requisite corporate
      power to own its properties and to carry on its business as now being conducted.
      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 or result in
      a
      Material Adverse Effect. The Company has registered its stock and is obligated
      to file reports pursuant to Section 12 or Section 15(d) of the Securities and
      Exchange Act of 1934, as amended (the “1934 Act”). The Common Stock is quoted on
      the Principal Trading Market. The Company has received no notice, either oral
      or
      written, with respect to the continued eligibility of the Common Stock for
      quotation on the Principal Trading Market, and the Company has maintained all
      requirements on its part for the continuation of such quotation. 

    


    c. Authorized
      Shares.

     

    (i) The
      authorized capital stock of the Company consists of (x) 50,000,000 shares of
      Common Stock, $0.001 par value per share, of which approximately 12,795,549
      are
      outstanding as of the date hereof, and (y) 50,000,000 million shares of
      preferred stock, $0.001 par value per share, consisting of (1) 2,000,000 Series
      “A” shares, all of which are outstanding on the date hereof and (2) 48,000,000
      Series “B” shares, all of which had been issued, but none of which are
      outstanding on the date hereof. Of the outstanding shares of Common Stock,
      approximately 7,894,598 shares are, to the best knowledge of the Company,
      beneficially owned by Affiliates of the Company. 

     

    (ii) There
      are
      no outstanding securities which are convertible into shares of Common Stock,
      whether such conversion is currently exercisable or exercisable only upon some
      future date or the occurrence of some event in the future. If any such
      securities are listed on the Disclosure Annex, the number or amount of each
      such
      outstanding convertible security and the conversion terms are set forth in
      said
      Disclosure Annex.

    


    (iii) All
      issued and outstanding shares of Common Stock have been duly authorized and
      validly issued and are fully paid and non-assessable. The Company has sufficient
      authorized and unissued shares of Common Stock as may be necessary to effect
      the
      issuance of the Shares on the Closing Date, were the Debentures fully converted
      and were the Warrant fully exercised on that date. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (iv) The
      Shares have been duly authorized by all necessary corporate action on the part
      of the Company, and, when issued on conversion of, or in payment of interest
      on,
      the Debentures or upon exercise of the Warrants, in each case in accordance
      with
      their respective terms, will have been duly and validly issued, fully paid
      and
      non-assessable and will not subject the Holder thereof to personal liability
      by
      reason of being such Holder.

    


    d. Transaction
      Agreements and Stock.
      This
      Agreement and each of the other Transaction Agreements, and the transactions
      contemplated hereby and thereby, have been duly and validly authorized by the
      Company. This Agreement has been duly executed and delivered by the Company
      and
      this Agreement is, and the Debentures, the Warrants and each of the other
      Transaction Agreements, when executed and delivered by the Company (if
      necessary), will be, valid and binding obligations of the Company enforceable
      in
      accordance with their respective terms, subject as to enforceability to general
      principles of equity and to bankruptcy, insolvency, moratorium, and other
      similar laws affecting the enforcement of creditors' rights
      generally.

    


    e. Non-contravention.
      The
      execution and delivery of this Agreement and each of the other Transaction
      Agreements by the Company, the issuance of the Securities in accordance with
      the
      terms hereof, and the consummation by the Company of the other transactions
      contemplated by this Agreement, the Debentures, the Warrants and the other
      Transaction Agreements do not and will not conflict with or result in a breach
      by the Company of any of the terms or provisions of, or constitute a default
      under (i) the certificate of incorporation or by-laws of the Company, each
      as
      currently in effect, (ii) any indenture, mortgage, deed of trust, or other
      material agreement or instrument to which the Company is a party or by which
      it
      or any of its properties or assets are bound, including any listing agreement
      for the Common Stock except as herein set forth, or (iii) to its knowledge,
      any
      existing applicable law, rule, or regulation or any applicable decree, judgment,
      or order of any court, United States federal or state regulatory body,
      administrative agency, or other governmental body having jurisdiction over
      the
      Company or any of its properties or assets, except such conflict, breach or
      default which would not have or result in a Material Adverse
      Effect.

    


    f. Approvals.
      No
      authorization, approval or consent of any court, governmental body, regulatory
      agency, self-regulatory organization, or stock exchange or market or the
      stockholders of the Company is required to be obtained by the Company for the
      issuance and sale of the Securities to the Buyer as contemplated by this
      Agreement, except such authorizations, approvals and consents that have been
      obtained.  

     

    g. Filings.
      None of
      the Company’s SEC Documents contained, at the time they were filed, any untrue
      statement of a material fact or omitted to state any material fact required
      to
      be stated therein or necessary to make the statements made therein, in light
      of
      the circumstances under which they were made, not misleading. Since February
      1,
      2006, the Company has filed all annual and quarterly reports required to be
      filed by the Company with the SEC under Section 13(a) or 15(d) of the 1934
      Act.

    


    h. Absence
      of Certain Changes.
      Since
      the Last Audited Date, there has been no Material Adverse Effect, except as
      disclosed in the Company’s SEC Documents. Since the Last Audited Date, except as
      provided in the Company’s SEC Documents, the Company has not (i) incurred or
      become subject to any material liabilities (absolute or contingent) except
      liabilities incurred in the ordinary course of business consistent with past
      practices; (ii) discharged or satisfied any material lien or encumbrance or
      paid
      any material obligation or liability (absolute or contingent), other than
      current liabilities paid in the ordinary course of business consistent with
      past
      practices; (iii) declared or made any payment or distribution of cash or other
      property to stockholders with respect to its capital stock, or purchased or
      redeemed, or made any agreements to purchase or redeem, any shares of its
      capital stock; (iv) sold, assigned or transferred any other material tangible
      assets, or canceled any material debts owed to the Company by any third party
      or
      material claims of the Company against any third party, except in the ordinary
      course of business consistent with past practices; (v) waived any rights of
      material value, whether or not in the ordinary course of business, or suffered
      the loss of any material amount of existing business; (vi) made any increases
      in
      employee compensation, except in the ordinary course of business consistent
      with
      past practices; or (vii) experienced any material problems with labor or
      management in connection with the terms and conditions of their
      employment.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    i. Full
      Disclosure.
      There is
      no fact known to the Company (other than conditions known to the public
      generally or as disclosed in the Company’s SEC Documents) that has not been
      disclosed in writing to the Buyer that would reasonably be expected to have
      or
      result in a Material Adverse Effect.

    


    j. Absence
      of Litigation.
      There is
      no action, suit, proceeding, inquiry or investigation before or by any court,
      public board or body pending or, to the knowledge of the Company, threatened
      against or affecting the Company before or by any governmental authority or
      non-governmental department, commission, board, bureau, agency or
      instrumentality or any other person, wherein an unfavorable decision, ruling
      or
      finding would have a Material Adverse Effect or which would adversely affect
      the
      validity or enforceability of, or the authority or ability of the Company to
      perform its obligations under, any of the Transaction Agreements. There are
      no
      outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or
      stipulations to which the Company is a party or by which it or any of its
      properties is bound, that involve the transaction contemplated herein or that,
      alone or in the aggregate, could reasonably be expect to have a Material Adverse
      Effect.

    


    k. Absence
      of Events of Default.
      Except
      as set forth in Section 3(e) hereof, no Event of Default (or its equivalent
      term), as defined in the respective agreement to which the Company or its
      Subsidiary is a party, and no event which, with the giving of notice or the
      passage of time or both, would become an Event of Default (or its equivalent
      term) (as so defined in such agreement), has occurred and is continuing, which
      would have a Material Adverse Effect.

    


    l. Absence
      of Certain Company Control Person Actions or Events.
      To the
      Company’s knowledge, none of the following has occurred during the past five (5)
      years with respect to a Company Control Person:

    


    (1)
      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;

    


    (2)
      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);

    


    (3)
      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:

    


    (i)
      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;

    


    (ii)
      engaging in any type of business practice; or

    


    (iii)
      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;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (4)
      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
      (3)
      of this item, or to be associated with Persons engaged in any such activity;
      or

    


    (5)
      Such
      Company Control Person was found by a court of competent jurisdiction in a
      civil
      action or by the CFTC or SEC to have violated any federal or state securities
      law, and the judgment in such civil action or finding by the CFTC or SEC has
      not
      been subsequently reversed, suspended, or vacated.

    


    m. No
      Undisclosed Liabilities or Events.
      The
      Company has no liabilities or obligations other than those disclosed in the
      Transaction Agreements or the Company's SEC Documents or those incurred in
      the
      ordinary course of the Company's business since the Last Audited Date, or which
      individually or in the aggregate, do not or would not have a Material Adverse
      Effect. No event or circumstance has occurred or exists with respect to the
      Company or its properties, business, operations, condition (financial or
      otherwise), or results of operations, which, 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. There
      are no proposals currently under consideration or currently anticipated to
      be
      under consideration by the Board of Directors or the executive officers of
      the
      Company which proposal would (x) change the Certificate of Incorporation or
      by-laws of the Company, each as currently in effect, with or without stockholder
      approval, which change would reduce or otherwise adversely affect the rights
      and
      powers of the stockholders of the Common Stock or (y) materially or
      substantially change the business, assets or capital of the Company, including
      its interests in subsidiaries.

    


    n. No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates nor any Person acting on its or their
      behalf has, directly or indirectly, at any time since August 1, 2006, made
      any
      offer or sales of any security or solicited any offers to buy any security
      under
      circumstances that would eliminate the availability of the exemption from
      registration under Regulation D in connection with the offer and sale of the
      Securities as contemplated hereby.

    


    o. Dilution.
      Each of
      the Company and its executive officers and directors is aware that the number
      of
      shares issuable on conversion of the Debentures, upon exercise of the Warrants
      or pursuant to the other terms of the Transaction Agreements may have a dilutive
      effect on the ownership interests of the other stockholders (and Persons having
      the right to become stockholders) of the Company. The Company specifically
      acknowledges that its obligation to issue the Conversion Shares upon conversion
      of the Debentures, 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 stockholders of the Company, and the
      Company will honor such obligations, including honoring every Notice of
      Conversion (as contemplated by the Debentures) and every Notice of Exercise
      (as
      contemplated by the Warrants), unless the Company is subject to an injunction
      (which injunction was not sought by the Company) prohibiting the Company from
      doing so.

    


    p. No
      Material Asset Security Interest.
      There
      are no Material Asset Security Interests. 

    


    q. Fees
      to Brokers, Placement Agents and Others.
      The
      Company has taken no action which would give rise to any claim by any Person
      for
      brokerage commission, placement agent or finder's fees or similar payments
      by
      Buyer relating to this Agreement or the transactions contemplated hereby.
      Notwithstanding the foregoing, the Company acknowledges that it has agreed
      to
      pay the Placement Agent’s Compensation (as defined in the Joint Escrow
      Instructions) to the Placement Agent in connection with the transactions
      contemplated hereby. Except for such fees arising as a result of any agreement
      or arrangement entered into by the Buyer without the knowledge of the Company
      (a
“Buyer’s Fee”), Buyer shall have no obligation with respect to such fees or with
      respect to any claims made by or on behalf of other Persons for fees of a type
      contemplated in this paragraph that may be due in connection with the
      transactions contemplated hereby. The Company shall indemnify and hold harmless
      each of Buyer, its employees, officers, directors, agents, and partners, and
      their respective Affiliates, from and against all claims, losses, damages,
      costs
      (including the costs of preparation and attorney's fees) and expenses suffered
      in respect of any such claimed or existing fees (other than a Buyer’s
      Fee).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    r. Disclosure.
      All
      information relating to or concerning the Company set forth in the Transaction
      Agreements or in the Company’s public filings with the SEC is true and correct
      in all material respects and the Company has not omitted to state any material
      fact necessary in order to make the statements made, in light of the
      circumstances under which they were made, not misleading. No event or
      circumstance has occurred or exists with respect to the Company or its business,
      properties, prospects, operations or financial conditions, which under
      applicable law, rule or regulation, requires public disclosure or announcement
      by the Company.

    


    s. Confirmation.
      The
      Company agrees that, if, to the knowledge of the Company, any events occur
      or
      circumstances exist prior to the release of the Escrow Funds to the Company
      which would make any of the Company’s representations or warranties set forth
      herein materially untrue or materially inaccurate as of such date, the Company
      shall immediately notify the Buyer (directly or through the Placement Agent)
      and
      the Escrow Agent in writing prior to such date of such fact, specifying which
      representation, warranty or covenant is affected and the reasons
      therefor.

    


    4. CERTAIN
      COVENANTS AND ACKNOWLEDGMENTS.

    


    a. Transfer
      Restrictions. 

    


    (i) The
      Buyer
      acknowledges that (1) the Securities have not been and are not being registered
      under the provisions of the 1933 Act and, except as provided in the Registration
      Rights Agreement or otherwise included in an effective registration statement,
      the Shares have not been and are not being registered under the 1933 Act, and
      may not be transferred unless (A) subsequently registered thereunder or (B)
      the
      Buyer shall have delivered to the Company an opinion of counsel, reasonably
      satisfactory in form, scope and substance to the Company, to the effect that
      the
      Securities to be sold or transferred may be sold or transferred pursuant to
      an
      exemption from such registration; (2) any sale of the Securities made in
      reliance on Rule 144 may be made only in accordance with the terms of said
      Rule
      and further, if said Rule is not applicable, any resale of such Securities
      under
      circumstances in which the seller, or the Person through whom the sale is made,
      may be deemed to be an underwriter, as that term is used in the 1933 Act, may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (3) neither the Company nor any other
      Person is under any obligation to register the Securities (other than pursuant
      to the Registration Rights Agreement) under the 1933 Act or to comply with
      the
      terms and conditions of any exemption thereunder.

    


    (ii) In
      addition to the foregoing, and not in lieu thereof, the Buyer agrees that,
      without the express written consent of the Company in each instance, it will
      not
      transfer any of the Purchased Securities to any Person which is known to the
      Buyer to be in substantially the same business as the Company or which is known
      to be a subsidiary or affiliate of such a Person.

    


    b. Restrictive
      Legend.
      The
      Buyer acknowledges and agrees that, until such time as the relevant Shares
      have
      been registered under the 1933 Act, as contemplated by the Registration Rights
      Agreement, and may be sold in accordance with an effective Registration
      Statement or otherwise in accordance with another effective registration
      statement, or until such Shares can otherwise be sold without restriction,
      whichever is earlier, the certificates and other instruments representing any
      of
      the Securities shall bear a restrictive legend in substantially the following
      form (and a stop-transfer order may be placed against transfer of any such
      Securities):

    


    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
      FOR
      SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      OR
      AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    c. Filings.
      The
      Company undertakes and agrees to make all filings required to be made by it
      in
      connection with the sale of the Securities to the Buyer under the 1933 Act,
      the
      1934 Act or the securities laws and regulations of any of the United States
      applicable to the Company or by the rules and regulations of the Principal
      Trading Market, and, unless such filing is publicly available on the SEC’s EDGAR
      system (via the SEC’s web site at no additional charge), to provide a copy
      thereof to the Buyer promptly after such filing. Reference is made to the
      Section titled “Publicity, Filings, Releases, Etc.” below.

    


    d. Reporting
      Status.
      So long
      as the Buyer beneficially owns any of the Purchased Securities and for at least
      twenty (20) Trading Days thereafter, the Company shall file all reports required
      to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall
      take all reasonable action under its control to ensure that adequate current
      public information with respect to the Company, as required in accordance with
      Rule 144(c)(2) of the 1933 Act, is publicly available, and shall not terminate
      its status as an issuer required to file reports under the 1934 Act even if
      the
      1934 Act or the rules and regulations thereunder would permit such termination.
      The Company will take all reasonable action under its control to maintain the
      continued listing and quotation and trading of its Common Stock (including,
      without limitation, all Registrable Securities) on the Principal Trading Market
      or a listing on the NASDAQ Capital or National Markets or AMEX and, to the
      extent applicable to it, will comply in all material respects with the Company’s
      reporting, filing and other obligations under the by-laws or rules of the
      Principal Trading Market and/or the National Association of Securities Dealers,
      Inc., as the case may be, applicable to it at least through the date which
      is
      sixty (60) days after the later of the date on which (x) all of the Debentures
      have been converted or have been paid in full or (y) all of the Warrants have
      been exercised or have expired.

    


    e. Use
      of Proceeds.
      The
      Company will use the net proceeds received hereunder (excluding amounts paid
      as
      contemplated by the Joint Escrow Instructions) as provided in Annex
      IX
      attached
      hereto (the “Use of Proceeds”). The Use of Proceeds provides, among other
      things, that such net proceeds on the Closing Date shall be used (i) first,
      for
      payment of certain fees and expenses; and (ii) then, for general corporate
      purposes; provided however, the Company will not use such to pay fees payable
      (x) to another broker or finder (other than the Placement Agent) relating to
      the
      offer and sale of the Purchased Securities or (y) to any other party relating
      to
      any financing transaction effected prior to the Closing Date.

     

    f. Warrants.

    


    (i) The
      Company agrees to issue to the Buyer on the Closing Date one or more
      transferable warrants (each, a "Warrant" and, collectively, the "Warrants"),
      designated as its Series 2007-01 Warrants. The Warrants to be issued to the
      Buyer shall be Class A or Class B Warrants, 

    as
      indicated on the Buyer’s signature page.

    


    (ii) The
      Warrants issued to the Buyer shall be for the purchase of a number of shares
      of
      Common Stock equal to one hundred percent (100%) of the Issue Date Conversion
      Shares.

    


    (iii) Each
      Warrant shall have an exercise price (each, an "Exercise Price") equal to $1.20;
      such Exercise Price will be subject to adjustment as provided in the
      Warrant.

    


    (iv) Each
      of
      the Warrants shall be exercisable commencing on the Commencement Date specified
      in the Warrants. Each of the Warrants shall expire at the close of business
      on
      the last day of the calendar month in which the third annual anniversary of
      the
      Effective Date occurs

    


    (v) Each
      Warrant shall have cashless exercise rights and automatic exercise provisions,
      each as provided in the Warrant. Except as specified above, each Warrant shall
      generally be in the form annexed hereto as Annex
      V-A
      or
Annex
      V-B,
      as the
      case may be.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (vi) The
      Warrant Shares shall be subject to the relevant provisions of the Registration
      Rights Agreement.

    


    g. Certain
      Agreements.

    


    (i) For
      purposes of this Agreement, the following terms shall have meanings
      indicated:

    


    (A) “New
      Transaction Period” means the period commencing on the Closing Date and
      continuing through and including the Final Lock-up Date.

    


    (B) “Final
      Lock-up Date” means the date on which the aggregate principal amount of all
      outstanding Debentures is twenty-five percent (25%) or less of the Aggregate
      Purchase Price. 

    


    (C) “New
      Transaction Price” means the Basic New Transaction Price (as defined below)
      except that if the New Transaction Exercise Price is lower than the Basic New
      Transaction Price, it means the New Transaction Exercise Price. 

    


    (D) “Basic
      New Transaction Price” means, as may be applicable, on a per share basis, the
      lower of (1) the lowest fixed purchase price of any shares of the New Common
      Stock contemplated in the New Transaction, or (2) the lowest conversion price
      or
      put or call price which would be applicable under the terms of the New
      Transaction; in each such case, whether such purchase or conversion price or
      put
      or call price is stated or otherwise specified or is determined on the closing
      date of the New Transaction by the application of a formula set in the documents
      reflecting the New Transaction or does result from adjustments or revisions
      contemplated in the relevant agreements for the New Transaction (and the Company
      hereby covenants that it will provide written notice to the Buyer of any such
      adjustment or revision within five (5) Trading Days after an event reflecting
      such adjustment or revision and, if there was a conversion of any portion of
      the
      Buyer’s Debenture after such adjustment or revision and before Buyer’s receipt
      of such notice, the Company will issue additional shares to Buyer based on
      such
      adjusted conversion price) and whenever such adjustment or revision would be
      applicable (and if no minimum purchase price, conversion price or put or call
      price, as the case may be, is set, it shall be assumed that such minimum
      purchase price or conversion price is $.01); and provided, further, that, if
      the
      securities issued in the New Transaction are issued at a Face Value Discount
      (as
      defined below), the New Transaction Price shall be adjusted to reflect such
      discount.1

    


    (E) “Exercise
      Threshold Price” means the then applicable Exercise Price.

    


    (F) “New
      Transaction Exercise Price” means the lowest exercise price per share applicable
      to the warrants, option or similar instrument (howsoever denominated;
      collectively, “New Transaction Warrants”) included in such New Transaction,
      whether such exercise price is stated or does result from adjustments or
      revisions contemplated in the relevant agreements for the New Transaction (and
      the Company hereby covenants that it will provide written notice to the Buyer
      of
      any such adjustment or revision within five (5) Trading Days after an event
      reflecting such adjustment or revision and, if there was an exercise of any
      portion of the Buyer’s Warrant after such adjustment or revision and before
      Buyer’s receipt of such notice, the Company will issue additional shares to
      Buyer based on such adjusted exercise price) and whenever such exercise price
      would be applicable (and, if no minimum exercise price is set, it shall be
      assumed that such minimum exercise price is $.01).

     

    _________________

      1By
        way of
        illustration, if convertible preferred shares having a stated value of $1
        million and a fixed conversion price of $0.05 were sold for a purchase price
        of
        $800,000, the effective New Transaction Price would be $0.04.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (G) “Alternative
      Warrant Percentage” means, with respect to the relevant New Transaction, (1) the
      number of shares which are eligible to be purchased under the New Transaction
      Warrants, divided by (2) the aggregate of the shares of New Common Stock issued
      or issuable in such transaction (excluding the shares issuable on exercise
      of
      the New Transaction Warrants).

    


    (H) “Current
      Warrant Percentage” means, as of immediately before the consummation of the
      relevant New Transaction, the higher of (1) one hundred percent (100%) or (2)
      the highest Alternative Warrant Percentage of any preceding New
      Transaction.

    


    (I) “Outstanding
      Warrant Shares” means, for the Warrants or for any previously issued Added
      Warrants, the then outstanding number of Warrant Shares which would then be
      issuable upon the exercise in full of such Warrants (without regard to any
      limitations which may then restrict the Holder’s full exercise of such Warrant
      at any time) or such Added Warrants, if any, as in effect immediately prior
      to
      the relevant New Transaction.

    


    (J) “Original
      Warrant Shares” means, for the Warrants or for any previously issued Added
      Warrants, the original number of Warrant Shares issuable on exercise of such
      Warrants on the relevant Closing Date or as Added Warrants, as the case may
      be
      (in each case without regard to any limitations which may then restrict the
      Holder’s full exercise of such Warrant at any time).

    


    (K) “Face
      Value Discount” means consideration less than, as the case may be, (x) the
      number of shares being issued multiplied by the stated purchase price, (y)
      the
      stated principal amount of a debenture, note or similar instrument or (z) the
      stated value of the shares of convertible stock.

    


    (ii)
      The
      Company covenants and agrees that, if, during the New Transaction Period,
      without the prior written consent of a Majority in Interest of the Holders
      in
      each instance (which consent is in the sole discretion of the Holders and may
      be
      withheld for any reason or for no reason whatsoever), the Company enters into
      a
      New Transaction, then 

    


    (A) the
      New
      Transaction Price shall be deemed to be the “Lowest Fixed Conversion Price” for
      purposes of clause (y) of the definition of “Conversion Price” in the Debentures
      for all Unconverted Debentures; provided, however, if there was one or more
      previous New Transactions, the Lowest Fixed Conversion Price shall be the lowest
      New Transaction Price2
      of
      all
      New Transactions; and

    


    (B) if
      the
      New Transaction Exercise Price of any of the New Transaction Warrants is lower
      than the Exercise Threshold Price of the Warrants, then the Exercise Price
      of
      the then outstanding Warrants shall be adjusted to be equal to the New
      Transaction Exercise Price of such New Transaction Warrants; and

    


    (C) if
      the
      provisions applicable to the convertible preferred stock, convertible debenture
      or similar instrument (howsoever denominated), if any, of the New Transaction
      are more beneficial to the holder of such instrument than the corresponding
      terms applicable to the Debentures or in or to the Warrants, as the case may
      be,
      or if the terms which are beneficial to the Company in the relevant Transaction
      Agreements are not included in the corresponding instrument in the New
      Transaction, then, unless waived by a Majority in Interest of the Holders,
      the
      terms of the Transaction Agreements applying to the then outstanding Debentures
      or the Warrants or to the other Transaction Agreements, as the case may be,
      shall be modified to reflect similar terms (based, if relevant, on the Closing
      Date); provided, however, that nothing in this provision shall be read to mean
      that the Purchased Securities shall be changed to any other form of
      security;

     

    _________________
2Any
      New Transaction Price shall be adjusted for subsequent events as contemplated
      by
      the Debentures.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (D) if
      either
      (1) the Conversion Price is adjusted as contemplated by clause (A) above, and/or
      (2) the Alternative Warrant Percentage is greater than the Current Warrant
      Percentage (whether or not the Conversion Price has been adjusted as a result
      of
      the New Transaction), the Company shall issue to the Holder additional warrants
      (“Added Warrants”) for the purchase of the number of shares equal to the excess,
      if any, of 

    


    (x)
      (I)
      the higher of (a) the Alternative Warrant Percentage or (b) the Current Warrant
      Percentage, multiplied by (II) (a) the Purchase Price, divided by (b) the
      Conversion Price as determined on the Closing Date, multiplied by (III) a
      fraction, of which the numerator is the Outstanding Warrant Shares for all
      Warrants (including previously issued Added Warrants) and the denominator is
      Original Warrant Shares for all Warrants (including previously issued Added
      Warrants); over

    


    (y)
      the
      aggregate Outstanding Warrant Shares for all Warrants (including previously
      issued Added Warrants);

    


    the
      terms
      of such Added Warrants (including, but not limited, to term of exercisability,
      exercise price, manner and limitations, if any, on exercise, registration
      rights) shall be the same as the shall be the same as the applicable New
      Transaction Warrants issued in such New Transaction.

    


    (iii) The
      Company covenants and agrees that, any of the foregoing provisions of this
      Section 4(g) or any other provision of this Agreement or any of the other
      Transaction Agreements to the contrary notwithstanding, the Company will not,
      without the prior written consent of a Majority in Interest of the Holders
      in
      each instance (which consent is in the sole discretion of the Holders and may
      be
      withheld for any reason or for no reason whatsoever),

    


    (A) during
      the New Transaction Period, enter into any New Transaction where such
      transaction provides for a variable conversion price or a variable exercise
      price; provided, however, that this Section 4(g)(iii)(A) shall not apply
      to

    


    (1)
      a
      provision in a debenture, preferred equity security or similar instrument-based
      financing (howsoever denominated; a “New Debenture”) representing an obligation
      to repay the amount loaned or advanced by a New Investor to the Company in
      a New
      Transaction and represented by the New Debenture (the “New Debenture Original
      Principal”) which provides that (i) the Company shall be obligated to repay on a
      monthly or less frequent basis, beginning no earlier than three months after
      the
      issuance of the New Debenture, a fixed amount of the New Debenture Original
      Principal (not to exceed 4.77% per month of such New Debenture Original
      Principal), together with all accrued interest due and payable thereon and
      (ii)
      if such required periodic payment may be paid in shares of Common Stock, the
      number of shares to be issued pursuant to such provision shall be based on
      (x)
      the VWAP for at least the five (5) Regular Trading Days prior to the relevant
      scheduled payment date, multiplied by (y) a percentage no lower than seventy
      percent (70%); or

    


    (2)
      a New
      Transaction which meets all of the following conditions: (i) the New Transaction
      is not entered into prior to date which is thirty (30) days after the earlier
      of
      (x) the Effective Date covering all of the Registrable Securities or (y) the
      Initial Default Effective Date (as defined in the Debenture), (ii) no later
      than
      the Trading Day after the execution of the New Transaction, the Company gives
      a
      Voluntary Prepayment Notice (as defined in the Debenture) for all, and not
      less
      than all, of the outstanding Debentures of all Buyers and all of the other
      terms
      and conditions of such prepayment of the Debentures, as provided in Section
      4(F)
      of the Debenture,3
      are
      satisfied, and (iii) the documents reflecting such New Transaction specify
      that
      consummation of the transaction contemplated by such documents is expressly
      conditioned on the completion of the prepayment on all outstanding
      Debentures,

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (B) during
      the period commencing on the Closing Date and continuing through the Effective
      Date, enter into any New Transaction whatsoever, and

    


    (C) during
      the period commencing on the Effective Date and continuing through the date
      which is the six month anniversary of the Effective Date, enter into any New
      Transaction where such New Transaction provides for any registration rights
      (including, but not limited to demand or piggy-back registration rights) to
      any
      one or more of the New Investors in such New Transaction.

    


    The
      Company acknowledges that each of the foregoing provisions is independent of
      the
      others and that a breach of any of the foregoing provisions might result in
      adjustments referred to in other provisions of this Section 4(g) and, in
      addition (and not in lieu of such adjustments, if any) shall constitute an
      event
      of default under the Debenture and the other Transaction Agreements. The Company
      is aware that if such event of default occurs, a Holder of a Debenture will
      have
      certain redemption rights contemplated by the Debenture.

    


    (iv) Nothing
      in the foregoing provisions reflects either an obligation on the part of any
      Buyer to participate in any New Transaction or a limitation on any Buyer from
      participating in any New Transaction.

    


    (v) Any
      of
      the foregoing provisions of this Section 4(g) or any other provision of this
      Agreement or any of the other Transaction Agreements to the contrary
      notwithstanding, the Company shall not engage in any offers, sales or other
      transactions of its securities which would adversely affect the exemption from
      registration available for the transactions contemplated by the Transaction
      Agreements.

    


    (vi) The
      Company agrees that, prior to the Effective Date, it will not file any
      registration statement for the sale of shares by the Company or any other
      stockholder other than the Registration Statement contemplated by the
      Registration Rights Agreement (or amendments to such Registration Statement)
      and
      other than (x) a registration statement on Form S-8 (and any post-effective
      amendments thereto) and (y) a post-effective registration statement with respect
      to any registration statement which was declared effective prior to the Closing
      Date. 

    


    h. Company
      Principal’s Agreements.
      

     

    _________________

      3Such
        terms and conditions include, but are not necessarily limited to: the conditions
        which must be satisfied for the Company to give a Voluntary Prepayment Notice;
        the terms of the Voluntary Prepayment Notice; the satisfaction of all conditions
        through and including the Voluntary Prepayment Date (as defined in the
        Debenture); the rights of the Holder of a Debenture during the Prepayment
        Conversion Period (as defined in the Debenture); and the payment in full
        of the
        relevant Voluntary Prepayment Amount, as defined in and subject to the terms
        of
        the Debenture, to all Holders of Debentures on the Voluntary Prepayment
        Date.)

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (i) The
      Company hereby agrees that, no later than the Closing Date, the Company will
      cause each of its principal officers and all of its directors and certain
      persons set forth on Schedule 4(h) of the Company Disclosure (each, a “Company
      Principal”), and certain Persons who are related to or controlled by such
      Company Principal, to execute and deliver an agreement (each, a “Company
      Principal’s Agreement”) regarding limitations on the sale or other disposition
      of the shares of the Company’s Common Stock (or instruments convertible into or
      exercisable for such shares) held by such Company Principal or other Principal
      (as defined in the Company Principal’s Agreement), except that, notwithstanding
      its terms, the Company Principal’s Agreement will be deemed not apply to the
      sale of shares of Common Stock acquired by a Principal in open market
      transactions or from any other Person who was not bound by a Company Principal’s
      Agreement at the time of such acquisition by such Principal. Subject to the
      foregoing, each Company Principal’s Agreement shall be substantially in the form
      set forth in Annex
      VII
      attached
      hereto. 

    


    (ii) In
      addition, under certain circumstances as contemplated by the definition of
“New
      Transaction” in this Agreement, certain future issuances by the Company to
      persons identified in clause (f) of such definition are conditioned on such
      shares being subject to a Company Principal’s Agreement being executed by the
      relevant party (who, whether or not included in the definition of Company
      Principal in the preceding subparagraph (i), shall, for purposes of this Section
      4(h), be deemed to be a “Company Principal” identified in such definition). The
      Company covenants that it will obtain such executed Company Principal’s
      Agreement from the relevant party no later than the issuance of the relevant
      security to such party and that it will promptly provide a copy thereof to
      the
      Escrow Agent on behalf of the Buyer and the Other Buyers.

    


    i. Available
      Shares.
      

    


    (i) The
      Company shall have at all times authorized and reserved for issuance, free
      from
      preemptive rights, a number of shares (the “Reserved Amount”) at least equal to
      one hundred percent (100%) of the sum of (x) the number of shares of Common
      Stock issuable as may be required, at any time, to satisfy the conversion rights
      of the Holders of principal on all outstanding Convertible Debentures plus
      interest thereon through the Maturity Date (assuming for such purposes that
      interest is paid in shares at the Conversion Price), plus (y) the number of
      shares issuable upon exercise of all outstanding Warrants held by all Holders
      (in each case, whether any of such outstanding Convertible Debentures or
      Warrants were originally issued to the Holder, the Buyer or to any other party
      and without regard to any restrictions which might limit any Holder’s right to
      convert any of the Debentures or to exercise any of the Warrants held by any
      Holder). 

    


    (ii) The
      Reserved Amount shall be determined on the Closing Date and after each New
      Transaction Closing Date, and thereafter on the first Trading Day after the
      end
      of each subsequent calendar quarter, and the number of shares to be reserved
      shall be based on (q) all outstanding Debentures and the Conversion Price which
      would have been applicable as of such date and (r) all unexercised Warrants
      as
      of such date. The Reserved Amount determined on such date shall remain the
      Reserved Amount until the next New Transaction Closing Date or quarterly
      determination, as the case may be. The Company shall give written instructions
      to the Transfer Agent to reserve for issuance to the Buyer the number of shares
      equal to the Reserved Amount. The Company will, at the request of the Buyer
      (which request shall not be made more frequently than twice a year), provide
      written confirmation, certified by an executive officer of the Company, of
      the
      number of shares then reserved for the Buyer and that the instructions referred
      to in the preceding sentence have been given to the Transfer Agent.

    


    j. Publicity,
      Filings, Releases, Etc.
      Each of
      the parties agrees that it will not disseminate any information relating to
      the
      Transaction Agreements or the transactions contemplated thereby, including
      issuing any press releases, holding any press conferences or other forums,
      or
      filing any reports (collectively, “Publicity”), without giving the other party
      reasonable advance notice and an opportunity to comment on the contents thereof.
      Neither party will include in any such Publicity any statement or statements
      or
      other material to which the other party reasonably objects, unless in the
      reasonable opinion of counsel to the party proposing such statement, such
      statement is legally required to be included. In furtherance of the foregoing,
      the Company will provide to the Investor’s Counsel (as defined in the
      Registration Rights Agreement) drafts of the applicable text the first or
      initial filing of a Current Report on Form 8-K or a Quarterly or Annual Report
      on Form 10-Q or 10-K (or equivalent SB forms), as the case may be, intended
      to
      be made with the SEC which refers to the Transaction Agreements or the
      transactions contemplated thereby as soon as practicable (but at least two
      (2)
      Trading Days before such filing will be made) and will not include in such
      filing (or any other filing filed before then) any statement or statements
      or
      other material to which the other party reasonably objects, unless in the
      reasonable opinion of counsel to the party proposing such statement, such
      statement is legally required to be included. Notwithstanding the foregoing,
      each of the parties hereby consents to the inclusion of the text of the
      Transaction Agreements in filings made with the SEC (but any descriptive text
      accompanying or part of such filing shall be subject to the other provisions
      of
      this paragraph). Notwithstanding, but subject to, the foregoing provisions
      of
      this Section 4(j), the Company will, after the Closing Date, promptly issue
      a
      press release and file a Current Report on Form 8-K or, if appropriate, a
      quarterly or annual report on the appropriate form, referring to the
      transactions contemplated by the Transaction Agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    k. Independent
      Nature of Buyers' Obligations and Rights.
      The
      obligations of each Buyer under the Transaction Agreements are several and
      not
      joint with the obligations of any other Buyer, and no Buyer shall be responsible
      in any way for the performance of the obligations of any Other Buyer under
      any
      one or more of the Transaction Agreements. The decision of each Buyer or Other
      Buyer to purchase Purchased Securities pursuant to the Transaction Agreements
      has been made by such Buyer independently of any Other Buyer 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 or of its
      subsidiaries, if any, which may been made or given by any Other Buyer or any
      of
      their respective officers, directors, principals, employees, agents, counsel
      or
      representatives (collectively, including the Buyer, the “Buyer
      Representatives”). No Buyer Representative shall have any liability to any Other
      Buyer or the Company relating to or arising from any such information,
      materials, statements or opinions, if any. Each Buyer acknowledges that no
      Other
      Buyer has acted as agent for such Buyer in connection with making its investment
      hereunder and that no Buyer will be acting as agent of such Other Buyer in
      connection with monitoring its investment in the Purchased Securities or
      enforcing its rights under the Transaction Agreements. Each Buyer shall be
      entitled to independently protect and enforce its rights, including without
      limitation the rights arising out of this Agreement or out of the other
      Transaction Agreements, and it shall not be necessary for any Other Buyer to
      be
      joined as an additional party in any proceeding for such purpose. The Company
      acknowledges that, for reasons of administrative convenience, (x) the
      Transaction Agreements have been prepared by counsel for one of the Buyers
      and
      such counsel does not represent all of the Buyers with respect to the
      transactions contemplated hereby, and each other Buyer has retained its own
      counsel (or had the opportunity to do so) with respect to such transactions,
      and
      (y) the Company has elected to provide each of the Buyers with the same
      Transaction Agreements for the purpose of closing a transaction with multiple
      Buyers and not because it was required or requested to do so by any Buyer.
      In
      furtherance of the foregoing, and not in limitation thereof, the Company
      acknowledges that nothing contained in this Agreement or in any Transaction
      Agreement, and no action taken by any Buyer pursuant thereto, shall be deemed
      to
      constitute any two or more Buyers as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Buyers
      are
      in any way acting in concert or as a group with respect to such obligations
      or
      the transactions contemplated by the Transaction Agreements.

     

    l. Equal
      Treatment of Buyers.
      No
      consideration shall be offered or paid to any person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Agreements
      unless the same consideration is also offered to all of the parties to the
      Transaction Agreements.

    


    m. Trading
      Provisions.
      The
      Buyer agrees that, during the period from the date hereof until the date the
      Buyer’s own Debenture is fully paid or converted and the Buyer’s own Warrants
      have been exercised in full or have expired, neither the Buyer nor any of the
      Buyer’s Affiliates shall engage in any Short Sales of the Common Stock;
      provided, however, that unless and until the Company has (x) affirmatively
      demonstrated by the use of specific clear and convincing evidence that Buyer
      is
      engaging in Short Sales and (y) obtained an injunction to that effect against
      the Buyer from a court of competent jurisdiction, the Buyer shall be assumed
      to
      be in compliance with the provisions of this Section 4(m) and the Company shall
      remain obligated to fulfill all of its obligations under the Transaction
      Agreements; and provided, further, that the Company shall under no circumstances
      be entitled to request or demand that the Buyer affirmatively demonstrate that
      it has not engaged in any such Short Sales as a condition to the Company’s
      fulfillment of its obligations under any of the Transaction Agreements and
      shall
      not assert the Buyer’s failure to demonstrate such absence of such Short Sales
      as a defense to any breach of the Company’s obligations under any of the
      Transaction Agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    n. Independent
      Investment Decision.
      No Buyer
      has agreed to act with any Other Buyer for the purpose of acquiring, holding,
      voting or disposing of the Securities purchased hereunder for purposes of
      Section 13(d) under the Exchange Act, and each Buyer is acting independently
      with respect to its investment in the Securities. The decision of each Buyer
      to
      purchase Purchased Securities pursuant to this Agreement has been made by such
      Buyer independently of any other purchase 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 or its subsidiaries which may have made
      or given by any Other Buyer or by any agent or employee of any Other Buyer,
      and
      no Buyer or any of its agents or employees shall have any liability to any
      Other
      Buyer (or any other person) relating to or arising from any such information,
      materials, statements or opinions.

    


    o.
       NASD
      Rule 2710.
      The
      Company is aware that the Corporate Financing Rule 2710 (“NASD Rule 2710") of
      the National Association of Securities Dealers (“NASD”) is or may become
      applicable to the transactions contemplated by the Transaction Agreements or
      to
      the sale by a Holder of any of the Securities. If NASD Rule 2710 is so
      applicable, the Company shall, to the extent required by such rule, timely
      make
      any filings and cooperate with any broker or selling stockholder in respect
      of
      any consents, authorizations or approvals that may be necessary for the NASD
      to
      timely and expeditiously permit the stockholder to sell the
      securities.

    


    p. Keeping
      of Records and Books of Account.
      The
      Company shall keep and cause each Subsidiary, if any, to keep adequate records
      and books of account, in which complete entries will be made in accordance
      with
      GAAP consistently applied, reflecting all financial transactions of the Company
      and such subsidiaries, and in which, for each fiscal year, all proper reserves
      for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
      other purposes in connection with its business shall be made.

    


    q. Covenant
      Not to Grant Material Asset Security Interests.
      The
      Company agrees, for itself and for each Subsidiary, that, as long as any of
      the
      Debentures are outstanding, without the prior written consent of a Majority
      in
      Interest of the Holders in each instance (which consent is in the sole
      discretion of the Holders and may be withheld for any reason or for no reason
      whatsoever), no Material Asset Security Interest will be granted by the Company
      or any Subsidiary or permitted to exist.

     

    5. TRANSFER
      AGENT INSTRUCTIONS.

    


    a. The
      Company warrants that, with respect to the Securities, other than the stop
      transfer instructions to give effect to Section 4(a) hereof, it will give the
      Transfer Agent no instructions inconsistent with instructions to issue Common
      Stock from time to time upon conversion of the Debentures or exercise of the
      Warrants, as may be applicable from time to time, in such amounts as specified
      from time to time by the Company to the Transfer Agent, bearing the restrictive
      legend specified in Section 4(b) of this Agreement prior to registration of
      the
      Shares under the 1933 Act, registered in the name of the Buyer or its nominee
      and in such denominations to be specified by the Holder in connection therewith.
      Except as so provided, the Shares shall otherwise be freely transferable on
      the
      books and records of the Company as and to the extent provided in this Agreement
      and the other Transaction Agreements. Nothing in this Section shall affect
      in
      any way the Buyer's obligations and agreement to comply with all applicable
      securities laws upon resale of the Securities. If the Buyer provides the Company
      with an opinion of counsel reasonably satisfactory to the Company that
      registration of a resale by the Buyer of any of the Securities in accordance
      with clause (1)(B) of Section 4(a) of this Agreement is not required under
      the
      1933 Act or upon request from a Holder while the Registration Statement is
      effective, the Company shall (except as provided in clause (2) of Section 4(a)
      of this Agreement) permit the transfer of the Securities and, in the case of
      the
      Conversion Shares or the Warrant Shares, as may be applicable, promptly instruct
      the Transfer Agent to issue one or more certificates for Common Stock without
      legend in such name and in such denominations as specified by the
      Buyer.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    b. (i) The
      Company understands that a delay in the delivery of Conversion Certificates,
      whether on conversion of the Debenture and/or in payment of accrued interest
      or
      on exercise of the Warrants, beyond the relevant Delivery Date (as defined
      in
      the Debenture or Warrant, as the case may be) could result in economic loss
      to
      the Holder. As compensation to the Holder for such loss, in addition to any
      other available remedies at law, the Company agrees to pay late payments to
      the
      Holder for late issuance of the Conversion Certificates in accordance with
      the
      following schedule (where “No. Business Days Late” is defined as the number of
      Trading Days beyond two (2) Trading Days after the Delivery Date):

    

      
        	 	 	 	 	 	Late
                Payment For Each $10,000	 
	 	 	 	 	 	of
                Principal or Interest Being Converted or	 
	 	 	 	
                No.
                  Business Days Late

              	 	of
                Exercise Price of Warrant Being
                Exercised	 
	 	 	 	 	 	 	 
	
                 

              	 	 	
                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 Business Day Late beyond 10 days

              	 


      

       

    

    The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Nothing herein shall limit the Holder’s right to
      pursue actual damages for the Company’s failure to issue and deliver the
      Conversion Certificates to the Holder within a reasonable time. Furthermore,
      in
      addition to any other remedies which may be available to a Holder, in the event
      that the Company fails for any reason to effect delivery of such Conversion
      Certificates within two (2) Trading Days after the Delivery Date, the Converting
      Holder will be entitled to revoke the relevant Notice of Conversion or Notice
      of
      Exercise by delivering a notice to such effect to the Company prior to the
      Converting Holder’s receipt of the relevant Conversion Certificates, whereupon
      the Company and the Converting Holder shall each be restored to their respective
      positions immediately prior to delivery of such Notice of Conversion or Notice
      of Exercise, as the case may be; provided,
      however,
      that
      any payments contemplated by this Section 5(b) of this Agreement which have
      accrued through the date of such revocation notice shall remain due and owing
      to
      the Converting Holder notwithstanding such revocation.

     

    ________________________

    4  Example:
      Notice of Conversion or Notice of Exercise is delivered on Monday, December
      3,
      2007. The Delivery Date would be Thursday, December 6 (the third Trading Day
      after such delivery). If the certificate is delivered by Monday, December 10
      (2
      Trading Days after the Delivery Date), no payment under this provision is due.
      If the certificates are delivered on December 11, that is 1 “Trading Day Late”
in the table below; if delivered on December 18, that is 6 “Trading Days Late”
in the table.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (ii) If,
      by
      the tenth Trading Day after the relevant Delivery Date, the Company fails for
      any reason to deliver the Conversion Certificates, but at any time after the
      Delivery Date, the Converting Holder purchases, in an arm’s-length open market
      transaction or otherwise, shares of Common Stock (the “Covering Shares”) in
      order to make delivery in satisfaction of a sale of Common Stock by the
      Converting Holder (the “Sold Shares”), which delivery such Converting Holder
      anticipated to make using the shares to be issued upon such conversion (a
“Buy-In”), the Converting Holder shall have the right to require the Company to
      pay to the Converting Holder, in addition to and not in lieu of the amounts
      contemplated in other provisions of the Transaction Agreements, including,
      but
      not limited to, the provisions of the immediately preceding Section 5(b)(i)),
      the Buy-In Adjustment Amount (as defined below). The “Buy-In Adjustment Amount”
is the amount equal to the number of Sold Shares multiplied by the excess,
      if
      any, of (x) the Holder's total purchase price per share (including brokerage
      commissions, if any) for the Covering Shares over (y) the net proceeds per
      share
      (after brokerage commissions, if any) received by the Holder from the sale
      of
      the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the
      Holder in immediately available funds immediately upon demand by the Converting
      Holder. By way of illustration and not in limitation of the foregoing, if the
      Holder purchases shares of Common Stock having a total purchase price (including
      brokerage commissions) of $11,000 to cover a Buy-In with respect to shares
      of
      Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
      which Company will be required to pay to the Holder will be $1,000.

    


    c. The
      provisions of this paragraph apply on or after the Effective Date and only
      so
      long as the effectiveness of the applicable registration has not been suspected
      or withdrawn or if the provisions of Rule 144(k) would then be applicable to
      the
      sale of the relevant Shares by the Holder (collectively, the “Effective
      Period”). During the Effective Period, the Company will issue Shares without
      legend and without transfer restrictions on the books of the Transfer Agent,
      and, at the request of the Holder, will use it best efforts to have previously
      issued certificates representing the Shares re-issued without legend and without
      transfer restrictions on the books of the Transfer Agent. In lieu of delivering
      physical certificates representing the Common Stock issuable upon conversion
      of
      the Debenture or exercise of a Warrant or at the request of the Holder with
      respect to any Shares previously issued, provided the Transfer Agent is
      participating in the Depository Trust Company (“DTC”) Fast Automated Securities
      Transfer program, upon request of the Holder and the Holder’s compliance with
      the provisions contained in this paragraph, so long as the certificates therefor
      do not bear a legend and the Holder thereof is not obligated to return such
      certificate for the placement of a legend thereon, the Company shall use its
      best efforts to cause the Transfer Agent to electronically transmit to the
      Holder the Common Stock issuable upon conversion of the Debenture or exercise
      of
      the Warrant or in replacement of any Shares previously issued by crediting
      the
      account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent
      Commission system. The Company specifically acknowledges that, as of the date
      hereof and as of the Closing Date, the Transfer Agent is participating in the
      DTC program and the Company is not aware of any plans of the Transfer Agent
      to
      terminate such participation. While any Holder holds Registrable Securities,
      the
      Company will not appoint any transfer agent which does not participate in the
      DTC program.

    


    d. 
      The
      Company shall assume any fees or charges of the Transfer Agent or Company
      counsel regarding (i) the removal of a legend or stop transfer instructions
      with
      respect to Registrable Securities, and (ii) the issuance of certificates or
      DTC
      registration to or in the name of the Holder or the Holder’s designee or to a
      transferee as contemplated by an effective Registration Statement.
      Notwithstanding the foregoing, it shall be the Holder’s responsibility to obtain
      all needed formal requirements (specifically: medallion guarantee and prospectus
      delivery compliance) in connection with any electronic issuance of shares of
      Common Stock.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    e. The
      Holder of a Debenture or a Warrant shall be entitled to exercise its conversion
      or exercise privilege with respect to the Debenture or the Warrant, as the
      case
      may be, notwithstanding the commencement of any case under 11 U.S.C. Sec.101
      et seq.
      (the
“Bankruptcy Code”). In the event the Company is a debtor under the Bankruptcy
      Code, the Company hereby waives, to the fullest extent permitted, any rights
      to
      relief it may have under 11 U.S.C. Sec.362 in respect of such holder’s exercise
      privilege. The Company hereby waives, to the fullest extent permitted, any
      rights to relief it may have under 11 U.S.C. Sec.362 in respect of the
      conversion of the Debenture or the exercise of the Warrant. The Company agrees,
      without cost or expense to such Holder, to take or to consent to any and all
      action necessary to effectuate relief under 11 U.S.C. Sec.362.

    


    f. The
      Company will authorize the Transfer Agent to give information relating to the
      Company directly to the Holder or the Holder’s representatives upon the request
      of the Buyer or any such representative, to the extent such information relates
      to (i) the status of shares of Common Stock issued or claimed to be issued
      to
      the Holder in connection with a Notice of Conversion or a Notice of Exercise,
      or
      (ii) the aggregate number of outstanding shares of Common Stock of all
      stockholders (as a group and not individually) as of a current or other
      specified date. At the request of the Holder, the Company will provide the
      Holder with a copy of the authorization so given to the Transfer
      Agent.

    


    6. CLOSING
      DATE.

    


    a.
       The
      Closing Date shall occur on the date which is the first Trading Day after each
      of the conditions contemplated by Sections 7 and 8 hereof shall have either
      been
      satisfied or been waived by the party in whose favor such conditions
      run.

    


    b. The
      closing of the purchase and issuance of Debentures and Warrants shall occur
      on
      the Closing Date at the offices of the Escrow Agent.

    


    c. Notwithstanding
      anything to the contrary contained herein, on the Closing Date, the Escrow
      Agent
      will be authorized to release the Escrow Agent will be authorized to release
      the
      Escrow Property on the Closing Date as provided in the Joint Escrow
      Instructions.

    


    7. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.

    


    The
      Buyer
      understands that the Company's obligation to sell the Purchased Securities
      to
      the Buyer pursuant to this Agreement on the Closing Date is conditioned
      upon:

    


    a. The
      execution and delivery of this Agreement and the other Transaction Agreements
      by
      the Buyer on or before such Closing Date;

    


    b. Delivery
      by the Buyer to the Escrow Agent by the Closing Date of good funds as payment
      in
      full of an amount equal to the Purchase Price in accordance with this
      Agreement;

    


    c. The
      accuracy on such Closing Date of the representations and warranties of the
      Buyer
      contained in this Agreement, each as if made on such date, and the performance
      by the Buyer on or before such date of all covenants and agreements of the
      Buyer
      required to be performed on or before such date; and

    


    d. There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      the transactions contemplated hereby, or requiring any consent or approval
      which
      shall not have been obtained.

    


    8. CONDITIONS
      TO THE BUYER'S OBLIGATION TO PURCHASE.

    


    The
      Company understands that the Buyer's obligation to purchase the Purchased
      Securities on the Closing Date is conditioned upon:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    a. The
      execution and delivery of this Agreement and the other Transaction Agreements
      by
      the Company on or before such Closing Date;

    


    b. The
      delivery by the Company to the Escrow Agent of the Certificates in accordance
      with this Agreement;

    


    c. The
      delivery by the Company to the Escrow Agent on or before the Closing Date of
      the
      executed Company Principal’s Agreements from each Company Principal and the
      related Principals (as defined in each Company Principal’s Agreement) of such
      Company Principal;

    


    d. The
      Company shall have delivered to the Buyer copies of all requisite third party
      consents and/or waivers described in the Disclosure Annex;

    


    e. On
      such
      Closing Date, each of the Transaction Agreements executed by the Company on
      or
      before such date shall be in full force and effect and the Company shall not
      be
      in default thereunder;

    


    f. The
      accuracy in all material respects on such Closing Date of the representations
      and warranties of the Company contained in this Agreement, each as if made
      on
      such date, and the performance by the Company on or before such date of all
      covenants and agreements of the Company required to be performed on or before
      such date;

    


    g. The
      delivery to the Escrow Agent of an opinion of counsel for the Company, dated
      such Closing Date, addressed to the Buyer and the Other Buyers and to the
      Placement Agent, in form, scope and substance reasonably satisfactory to the
      Buyer and the Placement Agent, substantially to the effect set forth in
Annex
      III
      attached
      hereto;

    


    h. There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      the transactions contemplated hereby, or requiring any consent or approval
      which
      shall not have been obtained; and

    


    i. From
      and
      after the date hereof to and including such Closing Date, each of the following
      conditions will remain in effect: (i) the trading of the Common Stock shall
      not
      have been suspended by the SEC or on the Principal Trading Market; (ii) trading
      in securities generally on the Principal Trading Market shall not have been
      suspended or limited; (iii), no minimum prices shall been established for
      securities traded on the Principal Trading Market; and (iv) there shall not
      have
      been any material adverse change in any financial market.

    


    9. INDEMNIFICATION
      AND REIMBURSEMENT.

    


    a.
       (i)
      The
      Company agrees to indemnify and hold harmless the Buyer and its officers,
      directors, employees, and agents, and each Buyer Control Person from and against
      any losses, claims, damages, liabilities or expenses incurred (collectively,
      “Damages”), joint or several, and any action in respect thereof to which the
      Buyer, its partners, Affiliates, officers, directors, employees, and duly
      authorized agents, and any such Buyer Control Person becomes subject to,
      resulting from, arising out of or relating to any misrepresentation, breach
      of
      warranty or nonfulfillment of or failure to perform any covenant or agreement
      on
      the part of Company contained in this Agreement, as such Damages are incurred,
      except to the extent such Damages result primarily from Buyer's failure to
      perform any covenant or agreement contained in this Agreement or the Buyer's
      or
      its officer’s, director’s, employee’s, agent’s or Buyer Control Person’s illegal
      or willful misconduct, gross negligence, recklessness or bad faith (in each
      case, as determined by a non-appealable judgment to such effect) in performing
      its obligations under this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (ii) The
      Company hereby agrees that, if the Buyer, other than by reason of its gross
      negligence or willful misconduct or by reason of its trading of the Common
      Stock
      in a manner that is illegal under the United States federal securities laws
      (in
      each case, as determined by a non-appealable judgment to such effect), (x)
      becomes involved in any capacity in any action, proceeding or investigation
      brought by any stockholder of the Company, in connection with or as a result
      of
      the consummation of the transactions contemplated by this Agreement or the
      other
      Transaction Agreements, or if the Buyer is impleaded in any such action,
      proceeding or investigation by any Person, or (y) becomes involved in any
      capacity in any action, proceeding or investigation brought by the SEC, any
      self-regulatory organization or other body having jurisdiction, against or
      involving the Company or in connection with or as a result of the consummation
      of the transactions contemplated by this Agreement or the other Transaction
      Agreements, or (z) is impleaded in any such action, proceeding or investigation
      by any Person, then in any such case, the Company shall indemnify, defend and
      hold harmless the Buyer from and against and in respect of all losses, claims,
      liabilities, damages or expenses resulting from, imposed upon or incurred by
      the
      Buyer, directly or indirectly, and reimburse such Buyer for its reasonable
      legal
      and other expenses (including the cost of any investigation and preparation)
      incurred in connection therewith, as such expenses are incurred. The
      indemnification and reimbursement obligations of the Company under this
      paragraph shall be in addition to any liability which the Company may otherwise
      have, shall extend upon the same terms and conditions to any Affiliates of
      the
      Buyer who are actually named in such action, proceeding or investigation, and
      partners, directors, agents, employees and Buyer Control Persons (if any),
      as
      the case may be, of the Buyer and any such Affiliate, and shall be binding
      upon
      and inure to the benefit of any successors, assigns, heirs and personal
      representatives of the Company, the Buyer, any such Affiliate and any such
      Person.

    


    b. All
      claims for indemnification by any Indemnified Party (as defined below) under
      this Section shall be asserted and resolved as follows. In the event any claim
      or demand in respect of which any Person claiming indemnification under any
      provision of this Section (an “Indemnified Party”) might seek indemnity under
      paragraph (a) of this Section is asserted against or sought to be collected
      from
      such Indemnified Party by a Person other than a party hereto or an Affiliate
      thereof (a “Third Party Claim”), the Indemnified Party shall deliver a written
      notification, enclosing a copy of all papers served, if any, and specifying
      the
      nature of and basis for such Third Party Claim and for the Indemnified Party's
      claim for indemnification that is being asserted under any provision of this
      Section against any Person (the “Indemnifying Party”), together with the amount
      or, if not then reasonably ascertainable, the estimated amount, determined
      in
      good faith, of such Third Party Claim (a “Claim Notice”) with reasonable
      promptness to the Indemnifying Party. If the Indemnified Party fails to provide
      the Claim Notice with reasonable promptness after the Indemnified Party receives
      notice of such Third Party Claim, the Indemnifying Party shall not be obligated
      to indemnify the Indemnified Party with respect to such Third Party Claim to
      the
      extent that the Indemnifying Party's ability to defend has been prejudiced
      by
      such failure of the Indemnified Party. The Indemnifying Party shall notify
      the
      Indemnified Party as soon as practicable within the period ending thirty (30)
      calendar days following receipt by the Indemnifying Party of either a Claim
      Notice or an Indemnity Notice (as defined below) (the “Dispute Period”) whether
      the Indemnifying Party disputes its liability or the amount of its liability
      to
      the Indemnified Party under this Section and whether the Indemnifying Party
      desires, at its sole cost and expense, to defend the Indemnified Party against
      such Third Party Claim. The following provisions shall also apply.

    


    (i)
      If
      the Indemnifying Party notifies the Indemnified Party within the Dispute Period
      that the Indemnifying Party desires to defend the Indemnified Party with respect
      to the Third Party Claim pursuant to this paragraph (b) of this Section, then
      the Indemnifying Party shall have the right to defend, with counsel reasonably
      satisfactory to the Indemnified Party, at the sole cost and expense of the
      Indemnifying Party, such Third Party Claim by all appropriate proceedings,
      which
      proceedings shall be vigorously and diligently prosecuted by the Indemnifying
      Party to a final conclusion or will be settled at the discretion of the
      Indemnifying Party (but only with the consent of the Indemnified Party, which
      consent shall not be unreasonably withheld [it being understood that the
      withholding of consent to any such settlement which contemplates a payment
      by
      the Indemnified Party, the admission of any liability by the Indemnified Party
      or any future restrictions or limitations on the Indemnified Party will be
      considered reasonable], in the case of any settlement that provides for any
      relief other than the payment of monetary damages or that provides for the
      payment of monetary damages as to which the Indemnified Party shall not be
      indemnified in full pursuant to paragraph (a) of this Section). The Indemnifying
      Party shall have full control of such defense and proceedings, including any
      compromise or settlement thereof; provided, however, that the Indemnified Party
      may, at the sole cost and expense of the Indemnified Party, at any time prior
      to
      the Indemnifying Party's delivery of the notice referred to in the first
      sentence of this subparagraph (x), file any motion, answer or other pleadings
      or
      take any other action that the Indemnified Party reasonably believes to be
      necessary or appropriate protect its interests; and provided further, that
      if
      requested by the Indemnifying Party, the Indemnified Party will, at the sole
      cost and expense of the Indemnifying Party, provide reasonable cooperation
      to
      the Indemnifying Party in contesting any Third Party Claim that the Indemnifying
      Party elects to contest. The Indemnified Party may participate in, but not
      control, any defense or settlement of any Third Party Claim controlled by the
      Indemnifying Party pursuant to this subparagraph (i), and except as provided
      in
      the preceding sentence, the Indemnified Party shall bear its own costs and
      expenses with respect to such participation. Notwithstanding the foregoing,
      the
      Indemnified Party may take over the control of the defense or settlement of
      a
      Third Party Claim at any time if it irrevocably waives its right to indemnity
      under paragraph (a) of this Section with respect to such Third Party Claim.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (ii)
      If
      the Indemnifying Party fails to notify the Indemnified Party within the Dispute
      Period that the Indemnifying Party desires to defend the Third Party Claim
      pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives
      such notice but fails to prosecute vigorously and diligently or settle the
      Third
      Party Claim, each in a reasonable manner, or if the Indemnifying Party fails
      to
      give any notice whatsoever within the Dispute Period, then the Indemnified
      Party
      shall have the right to defend, at the sole cost and expense of the Indemnifying
      Party, the Third Party Claim by all appropriate proceedings, which proceedings
      shall be prosecuted by the Indemnified Party in a reasonable manner and in
      good
      faith or will be settled at the discretion of the Indemnified Party (with the
      consent of the Indemnifying Party, which consent will not be unreasonably
      withheld). The Indemnified Party will have full control of such defense and
      proceedings, including any compromise or settlement thereof; provided, however,
      that if requested by the Indemnified Party, the Indemnifying Party will, at
      the
      sole cost and expense of the Indemnifying Party, provide reasonable cooperation
      to the Indemnified Party and its counsel in contesting any Third Party Claim
      which the Indemnified Party is contesting. Notwithstanding the foregoing
      provisions of this subparagraph (ii), if the Indemnifying Party has notified
      the
      Indemnified Party within the Dispute Period that the Indemnifying Party disputes
      its liability or the amount of its liability hereunder to the Indemnified Party
      with respect to such Third Party Claim and if such dispute is resolved in favor
      of the Indemnifying Party in the manner provided in subparagraph (iii) below,
      the Indemnifying Party will not be required to bear the costs and expenses
      of
      the Indemnified Party's defense pursuant to this subparagraph (ii) or of the
      Indemnifying Party's participation therein at the Indemnified Party's request,
      and the Indemnified Party shall reimburse the Indemnifying Party in full for
      all
      reasonable costs and expenses incurred by the Indemnifying Party in connection
      with such litigation. The Indemnifying Party may participate in, but not
      control, any defense or settlement controlled by the Indemnified Party pursuant
      to this subparagraph (ii), and the Indemnifying Party shall bear its own costs
      and expenses with respect to such participation. 

    


    (iii)
      If
      the Indemnifying Party notifies the Indemnified Party that it does not dispute
      its liability or the amount of its liability to the Indemnified Party with
      respect to the Third Party Claim under paragraph (a) of this Section or fails
      to
      notify the Indemnified Party within the Dispute Period whether the Indemnifying
      Party disputes its liability or the amount of its liability to the Indemnified
      Party with respect to such Third Party Claim, the amount of Damages specified
      in
      the Claim Notice shall be conclusively deemed a liability of the Indemnifying
      Party under paragraph (a) of this Section and the Indemnifying Party shall
      pay
      the amount of such Damages to the Indemnified Party on demand. If the
      Indemnifying Party has timely disputed its liability or the amount of its
      liability with respect to such claim, the Indemnifying Party and the Indemnified
      Party shall proceed in good faith to negotiate a resolution of such dispute;
      provided, however, that if the dispute is not resolved within thirty (30) days
      after the Claim Notice, the Indemnifying Party shall be entitled to institute
      such legal action as it deems appropriate.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    c. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar rights of the indemnified party against the indemnifying
      party
      or others, and (ii) any liabilities the indemnifying party may be subject
      to.

    


    10. JURY
      TRIAL WAIVER. The
      Company and the Buyer 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 or in connection with the Transaction
      Agreements.

    


    11. SPECIFIC
      PERFORMANCE.
      The
      Company and the Buyer acknowledge and agree that irreparable damage would occur
      in the event that any provision of this Agreement or any of the other
      Transaction Agreements were not performed in accordance with its specific terms
      or were otherwise breached. It is accordingly agreed that the parties (including
      any Holder) shall be entitled to an injunction or injunctions, without (except
      as specified below) the necessity to post a bond, to prevent or cure breaches
      of
      the provisions of this Agreement or such other Transaction Agreement and to
      enforce specifically the terms and provisions hereof or thereof, this being
      in
      addition to any other remedy to which any of them may be entitled by law or
      equity; provided, however that the Company, upon receipt of a Notice of
      Conversion or a Notice of Exercise, may not fail or refuse to deliver the stock
      certificates and the related legal opinions, if any, or if there is a claim
      for
      a breach by the Company of any other provision of this Agreement or any of
      the
      other Transaction Agreements, the Company shall not raise as a legal defense,
      based on any claim that the Holder or anyone associated or affiliated with
      the
      Holder has violated any provision hereof or any other Transaction Agreement,
      has
      engaged in any violation of law or for any other reason, unless the Company
      has
      first posted a bond for one hundred fifty percent (150%) of the principal amount
      and, if relevant, then obtained a court order specifically directing it not
      to
      deliver said stock certificates to the Holder. The proceeds of such bond shall
      be payable to the Holder to the extent that the Holder obtains judgment or
      its
      defense is recognized. Such bond shall remain in effect until the completion
      of
      the relevant proceeding and, if the Holder appeals therefrom, until all such
      appeals are exhausted. This provision is deemed incorporated by reference into
      each of the Transaction Agreements as if set forth therein in full.

    


    12. GOVERNING
      LAW: MISCELLANEOUS.

    


    a. 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 or any of the other Transaction
      Agreements and hereby waives, to the maximum extent permitted by law, any
      objection, including any objection based on
      forum non conveniens,
      to the
      bringing of any such proceeding in such jurisdictions or to any claim that
      such
      venue of the suit, action or proceeding is improper. To the extent determined
      by
      such court, the Company shall reimburse the Buyer for any reasonable legal
      fees
      and disbursements incurred by the Buyer in enforcement of or protection of
      any
      of its rights under any of the Transaction Agreements. Nothing in this Section
      shall affect or limit any right to serve process in any other manner permitted
      by law.

    


    b. 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.

    


    c. This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      assigns of each of the parties hereto.

    


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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    e. A
      facsimile transmission of this signed Agreement shall be legal and binding
      on
      all parties hereto. 

    


    f. This
      Agreement may be signed in one or more counterparts, each of which shall be
      deemed an original.

    


    g. The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

    


    h. 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. 

    


    i. This
      Agreement may be amended only by an instrument in writing signed by the party
      to
      be charged with enforcement thereof. 

    


    j. This
      Agreement supersedes all prior agreements and understandings among the parties
      hereto with respect to the subject matter hereof.

    


    k. All
      dollar amounts referred to or contemplated by this Agreement or any other
      Transaction Agreement shall be deemed to refer to US Dollars, unless otherwise
      explicitly stated to the contrary.

    


    13. NOTICES.
      Any
      notice required or permitted hereunder shall be given in writing (unless
      otherwise specified herein) and shall be deemed effectively given on the
      earliest of 

    


    (a)
      the
      date delivered, if delivered by personal delivery as against written receipt
      therefor or by confirmed facsimile transmission,

    


    (b)
      the
      fifth Trading Day after deposit, postage prepaid, in the United States Postal
      Service by registered or certified mail, or

    


    (c)
      the
      third Trading Day after mailing by domestic or international express courier,
      with delivery costs and fees prepaid,

    


    in
      each
      case, addressed to each of the other parties thereunto entitled at the following
      addresses (or at such other addresses as such party may designate by ten (10)
      days’ advance written notice similarly given to each of the other parties
      hereto):

    


    
      	COMPANY:	
              At
                the address set forth at the head of this
                Agreement.

            


    

    Attn:
      CEO/Chairman 

    Telephone
      No.: (011-86-29) 8819-3188

    Telecopier
      No.: (011-86-29) 8819-3185

    


    with
      a
      copy to: 

     

    Richardson
      & Patel LLP

    Attn:
      Kevin K. Leung, Esq.

    10900
      Wilshire Blvd., Suite 500

    Los
      Angeles, California 90024

    Telephone
      No.: (310) 208-1182

    Telecopier
      No.: (310) 208-1154

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      	BUYER:	
              At
                the address set forth on the signature page of this
                Agreement.

            


    

    


    with
      a
      copy to:

    


    Krieger
      & Prager llp,
      Esqs.

    39
      Broadway 

    Suite
      1440

    New
      York,
      NY 10006

    Attn:
      Ronald J. Nussbaum, Esq.

    Telephone
      No.: (212) 363-2900

    Telecopier
      No. (212) 363-2999

    


    
      	ESCROW
              AGENT:	
              Krieger
                & Prager llp,
                Esqs.

            


    

    39
      Broadway 

    Suite
      1440

    New
      York,
      NY 10006

    Attn:
      Samuel Krieger, Esq.

    Telephone
      No.: (212) 363-2900

    Telecopier
      No. (212) 363-2999

    


    14. SURVIVAL
      OF REPRESENTATIONS AND WARRANTIES.
      The
      Company’s and the Buyer’s representations and warranties herein shall survive
      the execution and delivery of this Agreement and the delivery of the
      Certificates and the payment of the Purchase Price, for a period of two (2)
      years after the Closing Date and shall inure to the benefit of the Buyer and
      the
      Company and their respective successors and assigns.

    


    [BALANCE
      OF PAGE INTENTIONALLY LEFT BLANK.]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    [SECURITIES
      PURCHASE AGREEMENT SIGNATURE PAGE]

    


    IN
      WITNESS WHEREOF,
      with
      respect to the Purchase Price specified below for the Class of Debentures and
      Warrants 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.


    


    
      	PURCHASE
              PRICE: 	$________________________ 
	 	 
	
              for
                the purchase of [check
                one:] 

            
	 	 
	o Class
              A
              Debentures and Class A Warrants 	o Class
              B Debentures and Class
              B Warrants 


    

          

    BUYER:

     

    
      	 	 	 
	Address 	 	 	Printed Name of
              Buyer 
	 	 	 	 
	 	 	 	By: 	 
	Telecopier
              No. 	 	 	 	(Signature
              of Authorized Person) 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	Printed
              Name and Title 
	Jurisdiction of Incorporation
              or
              Organization	 	 	 
	 	 	 	 	 
	If the above Notice
              Address is
              not
              the Residence (for individual Buyer) or Principal Place of Business
              (for
              Buyer which is not an individual),
              such Residence or Principal Place of Business
              is: 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 


    

    


    COMPANY:

    


    SKYSTAR
      BIO-PHARMACEUTICAL COMPANY

     

    
      	By: 	 	 	 
	 	 	 	 
	Title: 	 	 	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ANNEX
                I 

            	 	FORM OF
              DEBENTURE 
	 	
              -A 

            	
              Class
                A 

            	 
	 	
              -B 

            	
              Class B 

            	 
	 	 	 	 
	ANNEX II 	 	JOINT ESCROW
              INSTRUCTIONS 
	 	 	 	 
	ANNEX III 	 	OPINION OF
              COUNSEL 
	 	 	 	 
	ANNEX IV 	 	REGISTRATION RIGHTS
              AGREEMENT 
	 	 	 	 
	ANNEX V 	 	FORM OF WARRANT 
	 	
              -A 

            	
              Class
                A 

            	 
	 	
              -B 

            	
              Class B 

            	 
	 	 	 	 
	ANNEX VI 	 	COMPANY’S SEC DOCUMENTS AVAILABLE
              ON EDGAR 
	 	 	 	 
	ANNEX VII	 	COMPANY PRINCIPAL’S
              AGREEMENT 
	 	 	 	 
	ANNEX VIII 	 	COMPANY
              DISCLOSURE 
	 	 	 
	ANNEX IX 	 	USE OF PROCEEDS 
	 	 	 
	ANNEX X 	 	PURCHASE PRICE WIRE
              INSTRUCTIONS