Unassociated Document


     

    SECURITIES
      PURCHASE AGREEMENT

     

    Dated
      as of October 14, 2008

     

    between

     

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

     

    and
      

     

    THE
      PURCHASER LISTED ON EXHIBIT A

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

    

      
        	 	 	
                PAGE

              
	 	 
	
                ARTICLE
                  I
                  Purchase and Sale of the Debenture

              	
                2

              
	 	 	 
	
                Section
                  1.1

              	
                Purchase
                  and Sale of the Debenture

              	
                2

              
	
                Section
                  1.2

              	
                Preferred
                  Shares and Common Conversion Shares

              	
                2

              
	
                Section
                  1.3

              	
                Purchase
                  Price and Closing

              	
                2

              
	 	 
	
                ARTICLE
                  II
                  Representations and Warranties of the Company

              	
                3

              
	 	 	 
	
                Section
                  2.1

              	
                Representations
                  and Warranties of the Company

              	
                3

              
	
                Section
                  2.2

              	
                Representations,
                  Warranties and Covenants of the Purchaser

              	
                12

              
	 	 
	
                ARTICLE
                  III
                  Covenants

              	
                15

              
	 	 	 
	
                Section
                  3.1

              	
                Securities
                  Compliance

              	
                15

              
	
                Section
                  3.2

              	
                Registration
                  and Listing

              	
                15

              
	
                Section
                  3.3

              	
                Inspection
                  Rights

              	
                16

              
	
                Section
                  3.4

              	
                Compliance
                  with Laws

              	
                16

              
	
                Section
                  3.5

              	
                Keeping
                  of Records and Books of Account

              	
                16

              
	
                Section
                  3.6

              	
                Reporting
                  Requirements

              	
                16

              
	
                Section
                  3.7

              	
                Other
                  Agreements

              	
                17

              
	
                Section
                  3.8

              	
                Amendments

              	
                17

              
	
                Section
                  3.9

              	
                Other
                  Agreements

              	
                17

              
	
                Section
                  3.10

              	
                Distributions

              	
                17

              
	
                Section
                  3.11

              	
                Status
                  of Dividends

              	
                18

              
	
                Section
                  3.12

              	
                Use
                  of Proceeds

              	
                18

              
	
                Section
                  3.13

              	
                Disclosure
                  of Transaction

              	
                18

              
	
                Section
                  3.14

              	
                Disclosure
                  of Material Information

              	
                19

              
	
                Section
                  3.15

              	
                Pledge
                  of Securities

              	
                19

              
	
                Section
                  3.16

              	
                Form
                  S-1 Eligibility

              	
                19

              
	
                Section
                  3.17

              	
                Sarbanes-Oxley
                  Act

              	
                19

              
	
                Section
                  3.18

              	
                No
                  Commissions in connection with Conversion of Debenture and Conversion
                  of
                  Preferred Shares

              	
                19

              
	
                Section
                  3.19

              	
                Post-Closing
                  Covenants

              	
                19

              
	
                Section
                  3.20

              	
                Subsequent
                  Financings

              	
                20

              
	
                Section
                  3.21

              	
                Reservation
                  of Shares

              	
                21

              
	
                Section
                  3.22

              	
                Transfer
                  Agent Instructions

              	
                22

              
	
                Section
                  3.23

              	
                Disposition
                  of Assets

              	
                22

              
	
                Section
                  3.24

              	
                Increase
                  in Authorized Shares of Preferred Stock

              	
                22

              
	
                Section
                  3.25

              	
                State
                  of Delaware Franchise TaxCertificate of Good Standing

              	
                23

              
	
                Section
                  3.26

              	
                Compliance
                  with PRC Labor and Employment Laws

              	
                23

              
	
                Section
                  3.27

              	
                Cap
                  on 2003 Equity Incentive Plan

              	
                23

              


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                ARTICLE
                  IV
                  Closing Conditions and Closing Deliveries

              	
                23

              
	 	 	 
	
                Section
                  4.1

              	
                Conditions
                  Precedent to the Obligation of the Company to Sell the
                  Debenture

              	
                23

              
	
                Section
                  4.2

              	
                Conditions
                  Precedent to the Obligation of the Purchaser to Purchase the
                  Debenture

              	
                24

              
	 	 
	
                ARTICLE
                  V
                  Stock Certificate Legend

              	
                26

              
	 	 	 
	
                Section
                  5.1

              	
                Legend

              	
                26

              
	 	 
	
                ARTICLE
                  VI
                  Indemnification

              	
                27

              
	 	 	 
	
                Section
                  6.1

              	
                Indemnification
                  of Purchaser

              	
                27

              
	
                Section
                  6.2

              	
                Indemnification
                  of Company

              	
                27

              
	
                Section
                  6.3

              	
                Indemnification
                  Procedure

              	
                28

              
	 	 
	
                ARTICLE
                  VII
                  Miscellaneous

              	
                29

              
	 	 	 
	
                Section
                  7.1

              	
                Fees
                  and Expenses

              	
                29

              
	
                Section
                  7.2

              	
                Specific
                  Enforcement, Consent to Jurisdiction

              	
                29

              
	
                Section
                  7.3

              	
                Entire
                  Agreement; Amendment

              	
                29

              
	
                Section
                  7.4

              	
                Notices

              	
                30

              
	
                Section
                  7.5

              	
                Waivers

              	
                30

              
	
                Section
                  7.6

              	
                Headings

              	
                31

              
	
                Section
                  7.7

              	
                Successors
                  and Assigns

              	
                31

              
	
                Section
                  7.8

              	
                No
                  Third Party Beneficiaries

              	
                31

              
	
                Section
                  7.9

              	
                Governing
                  Law

              	
                31

              
	
                Section
                  7.10

              	
                Survival

              	
                31

              
	
                Section
                  7.11

              	
                Counterparts

              	
                31

              
	
                Section
                  7.12

              	
                Publicity

              	
                31

              
	
                Section
                  7.13

              	
                Severability

              	
                31

              
	
                Section
                  7.14

              	
                Further
                  Assurances

              	
                32

              


      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    


    EXHIBITS

    


    
      	A.	
              Purchaser
                and Amount

            


    

    
      	B.	
              Form
                of Series B Certificate of
                Designation

            


    

    
      	C.	
              Form
                of Registration Rights Agreement

            


    

    
      	D.	
              Form
                of Conversion Notice

            


    

    
      	E.	
              Form
                of Share Escrow Agreement

            


    

    
      	F.	
              Form
                of Management Escrow Agreement

            


    

    
      	G.	
              Form
                of Opinion of Counsel

            


    

    
      	H.	
              Form
                of Debenture

            


    

    
      	I.	
              Form
                of Irrevocable Transfer Agent
                Instructions

            


    

    


    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      SECURITIES PURCHASE AGREEMENT (the “Agreement”)
      is
      dated as of October 14, 2008 by and between China Bio Energy Holding Group
      Co.,
      Ltd., a Delaware corporation (the “Company”), and the Purchaser set forth on
Exhibit
      A
      hereto
      (the “Purchaser”).

    


    RECITALS

    


    A.
       The
      common stock of the Company is a currently traded publicly on the
      Over-the-Counter Bulletin Board;

    


    B. The
      Company and the Purchaser are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation
      D”),
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”);
      and

    


    C. The
      Purchaser wishes to purchase from the Company, and the Company wishes to sell
      and issue to the Purchaser, upon the terms and conditions stated in this
      Agreement, a convertible debenture in the principal amount of $9,000,000 (the
      “Debenture”),
      convertible into an aggregate of 2,465,753 shares of Series B Convertible
      Preferred Stock, par value $0.001 (equivalent to a purchase price of $3.65
      per
      share) (the “Preferred Shares”), which shall initially convert into an aggregate
      of 2,465,753 shares of the Company’s Common Stock, subject to adjustment;
      and

    


    D. Contemporaneous
      with the sale of the Debenture, the parties hereto will execute and deliver
      a
      Registration Rights Agreement, in the form attached hereto as Exhibit
      C
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company will agree to provide certain registration rights
      under the Securities Act, and the rules and regulations promulgated thereunder,
      and applicable state securities laws, a Share Escrow Agreement, in the form
      attached hereto as Exhibit
      E
      and a
      Management Escrow Agreement, in the form attached hereto as Exhibit
      F.

     

    Now,
      therefore, in consideration of the mutual representations, warranties, covenants
      and agreements contained in this Agreement, the parties agree as
      follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      I

     

    Purchase
      and Sale of the Debenture

    


    Section
      1.1 Purchase
      and Sale of the Debenture.
      Upon
      the following terms and conditions, the Company shall issue and sell to the
      Purchaser and the Purchaser shall purchase from the Company a convertible
      debenture in the principal amount of $9,000,000 (the “Debenture”), convertible
      into 2,465,753 of shares of the Company’s Series B Convertible Preferred Stock,
      par value $0.001 per share (the “Preferred
      Shares”),
      (equivalent to a purchase price of $3.65 per Preferred Share), which is
      initially convertible into 2,465,753 shares of the Company’s common stock, par
      value $0.0001 per share (the “Common
      Stock”).
      The
      terms of the Debenture are set forth in the Debenture, a form of which is
      attached hereto as Exhibit
      H.
      The
      designation, rights, preferences and other terms and provisions of the Preferred
      Shares are set forth in the Certificate of Designation of the Relative Rights
      and Preferences of the Series B Convertible Preferred Stock attached hereto
      as
Exhibit
      B
      (the
“Certificate
      of Designation”).
      The
      Company and the Purchaser are executing and delivering this Agreement in
      accordance with and in reliance upon the exemption from securities registration
      afforded by Rule 506 of Regulation D (“Regulation
      D”),
      as
      promulgated by the United States Securities and Exchange Commission (the
“Commission”),
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”),
      or
      Section 4(2) of the Securities Act.

     

    Section
      1.2 Preferred
      Shares and Common Conversion Shares.
      Subject
      to the filing and effectiveness of an amendment to increase the authorized
      number of shares of preferred stock of the Company and the Certificate of
      Designation, the Company will authorize and reserve, and covenants to continue
      to reserve, free of preemptive rights and other similar contractual rights
      of
      stockholders, a number of Preferred Shares equal to one hundred ten percent
      (110%) of the number of Preferred Shares as shall from time to time be
      sufficient to effect the conversion of the Debenture. The Company has authorized
      and has reserved and covenants to continue to reserve, free of preemptive rights
      and other similar contractual rights of stockholders, a number of shares of
      Common Stock equal to one hundred ten percent (110%) of the number of shares
      of
      Common Stock as shall from time to time be sufficient to effect the conversion
      of all of the Preferred Shares. Any shares of Common Stock issuable upon
      conversion of the Preferred Shares are herein referred to as the “Common
      Conversion Shares”.
      The
      Preferred Shares and the Common Conversion Shares are sometimes collectively
      referred to as the “Shares”.
      The
      Debenture and the Shares are sometimes collectively referred to as the
“Securities”.

     

    Section
      1.3 Purchase
      Price and Closing.
      Subject
      to the terms and conditions hereof, the Company agrees to issue and sell to
      the
      Purchaser and, in consideration of and in express reliance upon the
      representations, warranties, covenants, terms and conditions of this Agreement,
      the Purchaser agrees to purchase the Debenture for an aggregate purchase price
      of $9,000,000 (the “Purchase
      Price”).
      The
      closing of the purchase and sale of the Debenture to be acquired by the
      Purchaser from the Company under this Agreement shall take place at the offices
      of Loeb & Loeb LLP, 345 Park Avenue, New York, NY 10154 (the “Closing”)
      at
      10:00 p.m., New York time (i) on or before ________________, 2008; provided,
      that
      all of the conditions set forth in Article IV hereof and applicable to the
      Closing shall have been fulfilled or waived in accordance herewith, or (ii)
      at
      such other time and place or on such date as the Purchaser and the Company
      may
      agree upon in writing signed by the Company and the Purchaser (the "Closing
      Date").
      Subject to the terms and conditions of this Agreement, at the Closing the
      Company shall deliver or cause to be delivered to the Purchaser (x) Debenture
      in
      the aggregate principal amount set forth opposite the name of such Purchaser
      on
Exhibit
      A
      hereto,
      (y) any other documents required to be delivered pursuant to Article IV
      hereof. 

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      II

     

    Representations
      and Warranties of the Company

     

    Section
      2.1 Representations
      and Warranties of the Company.
      For
      purposes of this Section 2.1 only, the Company hereby represents and warrants
      to
      the Purchaser, as of the date hereof (except as set forth on the Disclosure
      Schedules attached hereto as Schedules
      2.1
      (the
“Company Disclosure Schedules”), which are divided into sections that correspond
      to the sections of this Section 2.1. The Company Disclosure Schedule comprises
      a
      list of all exceptions to the truth and accuracy of, and of all disclosures
      or
      descriptions required by, the representations and warranties set forth in the
      remaining sections of this Section 2.1. For purposes of this Section 2.1, any
      statement, facts, representations, or admissions contained in the public filings
      made by the Company with the United States Securities and Exchange Commissions,
      are deemed to be included in the Company Disclosure Schedules and all such
      information is deemed to be fully disclosed to the Purchaser), as
      follows:

     

    (a) Organization,
      Good Standing and Power.
      Except
      as set forth on Schedule 2.1(a), the Company is a corporation duly incorporated,
      validly existing and in good standing under the laws of the State of Delaware,
      and has the requisite corporate power to own, lease and operate its properties
      and assets and to conduct its business as it is now being conducted. Except
      as
      set forth on Schedule
      2.1(a),
      the
      Company and each of its subsidiaries is duly qualified as a foreign corporation
      to do business and is in good standing in every jurisdiction in which the nature
      of the business conducted or property owned by it makes such qualification
      necessary, except for any jurisdiction(s) (alone or in the aggregate) in which
      the failure to be so qualified could not reasonably be expected to have a
      Material Adverse Effect (as defined in Section
      2.1(c)
      hereof)
      .

     

    (b) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and
      perform this Agreement, the Debenture, the Registration Rights Agreement,
      substantially in the form attached hereto as Exhibit
      C
      (the
“Registration
      Rights Agreement”),
      the
      Share Escrow Agreement, substantially in the form attached hereto as
Exhibit
      E
      (the
“Share
      Escrow Agreement”),
      the
      Management Escrow Agreement, substantially in the form attached hereto as
Exhibit
      F
      (the
“Management
      Escrow Agreement”)
      and
      the Certificate of Designation (collectively, the “Transaction
      Documents”)
      and to
      issue and sell the Debenture and, upon conversion, the Shares in accordance
      with
      the terms hereof, in the Debentures and in the Certificate of Designation.
      The
      execution, delivery and performance of the Transaction Documents by the Company,
      and the consummation by it of the transactions contemplated hereby and thereby,
      have been duly and validly authorized by all necessary corporate action, and
      no
      further consent or authorization of the Company or its Board of Directors or
      stockholders is required. This Agreement and each of the Transaction Documents,
      when executed and delivered at the Closing will have been duly executed and
      delivered and shall constitute a valid and binding obligation of the Company
      enforceable against the Company in accordance with their respective terms,
      except as such enforceability may be limited by applicable bankruptcy,
      insolvency, reorganization, moratorium, liquidation, conservatorship,
      receivership or similar laws relating to, or affecting generally the enforcement
      of, creditor’s rights and remedies or by other equitable principles of general
      application. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c) Capitalization.
      The
      authorized capital stock of the Company and the shares thereof currently issued
      and outstanding, are set forth on Schedule
      2.1(c)
      hereto.
      All of the outstanding shares of the Common Stock have been duly and validly
      authorized and issued. Except as set forth on Schedule
      2.1(c) hereto
      and as contemplated by this Agreement and the Transaction Documents, no shares
      of Common Stock are entitled to preemptive rights or registration rights and
      there are no outstanding options, warrants, scrip, rights to subscribe to,
      call
      relating to, or securities or rights convertible into, any shares of capital
      stock of the Company. Except as set forth on Schedule
      2.1(c)
      hereto
      and as contemplated by the Transaction Documents, there are no contracts,
      commitments, understandings, or arrangements by which the Company is or may
      become bound to issue additional shares of the capital stock of the Company
      or
      options, securities or rights convertible into shares of capital stock of the
      Company. Except as set forth on Schedule
      2.1(c)
      hereto
      and as contemplated by this Agreement and the Transaction Documents, the Company
      is not a party to any agreement granting registration or anti-dilution rights
      to
      any person with respect to any of its equity or debt securities. Except as
      disclosed on Schedule
      2.1(c),
      the
      Company
      is not a party to, and it has no knowledge of, any agreement restricting the
      voting or transfer of any shares of the capital stock of the Company. To the
      Company’s knowledge, the offer and sale of all capital stock, convertible
      securities, rights, warrants, or options of the Company issued prior to the
      Closing complied with all applicable Federal and state securities laws and
      no
      stockholder has a right of rescission or claim for damages with respect thereto
      which would have a Material Adverse Effect (as defined below). The Company
      has
      furnished or made available to the Purchaser true and correct copies of the
      Company’s Certificate of Incorporation as in effect on the date hereof (the
“Certificate”),
      and
      the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).
      For
      the purposes of this Agreement, “Material
      Adverse Effect”
means
      any material adverse effect on (i) the business, operations, properties, or
      financial condition of the Company and its subsidiaries, taken as a whole,
      or
      (ii) the ability of the Company to perform any of its obligations under the
      Transaction Documents.

     

    (d) Issuance
      of the Securities.
      The
      Debenture is duly authorized by all necessary corporate action, and when issued
      and paid for in accordance with the terms of this Agreement, will be validly
      issued and paid, fully paid and non-assessable. The Preferred Shares when issued
      in accordance with the terms of the Debenture will be duly authorized by all
      necessary corporate action, validly issued and outstanding, fully paid and
      nonassessable and entitled to the rights and preferences set forth in the
      Certificate of Designation. The Common Conversion Shares, when issued in
      accordance with the terms of the Certificate of Designation, will be duly
      authorized by all necessary corporate action and validly issued and outstanding,
      fully paid and nonassessable, and the holders shall be entitled to all rights
      accorded to a holder of Common Stock.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (e) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company,
      the performance by the Company of its obligations hereunder and thereunder
      and
      the consummation by the Company of the transactions contemplated herein and
      therein do not and will not (i) violate any provision of the Company’s
      Certificate or Bylaws, (ii) conflict with, or constitute a default (or an event
      which with notice or lapse of time or both would become a default) under, or
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
      license, lease agreement, instrument or obligation to which the Company is
      a
      party or by which it or its properties or assets are bound, (iii) create or
      impose a lien, mortgage, security interest, charge or encumbrance of any nature
      on any property of the Company under any agreement or any commitment to which
      the Company is a party or by which the Company is bound or by which any of
      its
      respective properties or assets are bound, or (iv) to the Company’s knowledge,
      result in a violation of any federal, state, local or foreign statute, rule,
      regulation, order, judgment or decree (including Federal and state securities
      laws and regulations) applicable to the Company or any of its subsidiaries
      or by
      which any property or asset of the Company or any of its subsidiaries are bound
      or affected, except, in all cases other than violations pursuant to clauses
      (i)
      and (iv) above, for such conflicts, defaults, terminations, amendments,
      accelerations, cancellations and violations as would not, individually or in
      the
      aggregate, have a Material Adverse Effect. To the Company’s knowledge, the
      business of the Company and its subsidiaries is not being conducted in violation
      of any laws, ordinances or regulations of any governmental entity, except for
      possible violations which singularly or in the aggregate do not and will not
      have a Material Adverse Effect. To the Company’s knowledge, the Company is not
      required under Federal, state or local law, rule or regulation to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency in order for it to execute, deliver or perform
      any
      of its obligations under the Transaction Documents, or issue and sell the
      Securities in accordance with the terms hereof or thereof (other than (x) any
      consent, authorization or order that has been obtained as of the date hereof,
      (y) any filing or registration that has been made as of the date hereof or
      (z)
      any filings which may be required to be made by the Company with the Commission
      or state securities administrators subsequent to the Closing, any registration
      statement which may be filed pursuant hereto, and the Certificate of
      Designation); provided
      that,
      for purposes of the representation made in this sentence, the Company is
      assuming and relying upon the accuracy of the relevant representations and
      agreements of the Purchaser herein.

     

    (f) Commission
      Documents, Financial Statements.
      Except
      as indicated on Schedule
      2.1(f),
      the
      Company has timely filed, or filed within the applicable extension period,
      all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the Commission pursuant to the reporting requirements of the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      including material filed pursuant to Section 13(a) or 15(d) of the Exchange
      Act
      (all of the foregoing including filings incorporated by reference therein being
      referred to herein as the “Commission
      Documents”)
      since
      October 23, 2007, and to the best of the Company’s knowledge all Commission
      Documents prior to October 23, 2007 were so filed. True and complete copies
      of
      all of the Commission Documents are available to the Purchaser through the
      Commission’s EDGAR database on www.sec.gov. The Company has not provided to the
      Purchaser any material non-public information or other information which,
      according to applicable law, rule or regulation, was required to have been
      disclosed publicly by the Company but which has not been so disclosed, other
      than with respect to the transactions contemplated by this Agreement. At the
      times of their respective filings, the Company’s Form 10-K for the year ended
      December 31, 2007, including the accompanying financial statements (the
“Form
      10-K”)
      and
      the Company’s Form 10-Q for the fiscal quarters ended March 31, 2008 and June
      30, 2008 (the “Form
      10-Qs”)
      complied in all material respects with the requirements of the Exchange Act
      and
      the rules and regulations of the Commission promulgated thereunder and other
      federal, state and local laws, rules and regulations applicable to such
      documents, and, as of their respective dates, neither the Form 10-K, nor the
      Form 10-Qs contained any untrue statement of a material fact or omitted to
      state
      a material fact required to be stated therein or necessary in order to make
      the
      statements therein, in light of the circumstances under which they were made,
      not misleading. The financial statements of the Company included in the
      Commission Documents comply as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the
      Commission or other applicable rules and regulations with respect thereto.
      Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles (“GAAP”)
      applied on a consistent basis during the periods involved (except (i) as may
      be
      otherwise indicated in such financial statements or the notes thereto or (ii)
      in
      the case of unaudited interim statements, to the extent they may not include
      footnotes), and fairly present in all material respects the financial position
      of the Company as of the dates thereof and the results of operations and cash
      flows for the periods then ended (subject, in the case of unaudited statements,
      to normal year-end audit adjustments).

     

    
      
        
        

      

      
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    (g) Subsidiaries.
      Set
      forth on Schedule
      2.1(g)
      is a
      list of the Company’s subsidiaries. For the purposes of this Agreement,
“subsidiary”
shall
      mean any corporation or other entity of which at least a majority of the
      securities or other ownership interest having ordinary voting power (absolutely
      or contingently) for the election of directors or other persons performing
      similar functions are at the time owned directly or indirectly by the Company
      and/or any of its other subsidiaries. 

     

    (h) No
      Material Adverse Change.
      Except
      as set forth on Schedule
      2.1(h),
      since
      June 30, 2008, the Company has not experienced or suffered any Material Adverse
      Effect.

     

    (i) No
      Undisclosed Liabilities.
      Neither
      the Company nor any of its subsidiaries has any liabilities, obligations, claims
      or losses (whether liquidated or unliquidated, secured or unsecured, absolute,
      accrued, contingent or otherwise) other than those incurred in the ordinary
      course of the Company’s or its subsidiaries respective businesses since June 30,
      2008, and which, individually or in the aggregate, do not or would not have
      a
      Material Adverse Effect on the Company or its subsidiaries.

     

    (j) No
      Undisclosed Events or Circumstances.
      No
      event or circumstance has occurred or exists with respect to the Company or
      its
      subsidiaries or their respective businesses, properties, prospects, operations
      or financial condition, which, under applicable law, rule or regulation,
      requires public disclosure or announcement by the Company but which has not
      been
      so publicly announced or disclosed since June 30, 2007.

     

    (k) Indebtedness.
      Schedule
      2.1(k)
      hereto
      sets forth as of a recent date all outstanding secured and unsecured
      Indebtedness of the Company or any subsidiary, or for which the Company or
      any
      subsidiary has commitments, in each case that have not previously been set
      forth
      in the Commission Documents. For the purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of
      $100,000 (other than trade accounts payable incurred in the ordinary course
      of
      business), (b) all guaranties, endorsements and other contingent obligations
      in
      respect of Indebtedness of others, whether or not the same are or should be
      reflected in the Company’s balance sheet (or the notes thereto), except
      guaranties by endorsement of negotiable instruments for deposit or collection
      or
      similar transactions in the ordinary course of business; and (c) the present
      value of any lease payments in excess of $25,000 due under leases required
      to be
      capitalized in accordance with GAAP. Except as set forth on Schedule
      2.1(k),
      neither
      the Company nor any subsidiary is in default with respect to any
      Indebtedness.

     

    
      
        
        

      

      
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    (l) Title
      to Assets.
      Except
      as set forth on Schedule
      2.1(l),
      each of
      the Company and the subsidiaries has good and marketable title to all of its
      real and personal property, free and clear of any mortgages, pledges, charges,
      liens, security interests or other encumbrances, except for those disclosed
      in
      the Financial Statements and the Commission Documents or such that, individually
      or in the aggregate, do not cause a Material Adverse Effect. Solely with respect
      to the Company, all of its real and personal property is reflected in the
      Financial Statements and the Commission Documents. Except as set forth on
Schedule
      2.1(l),
      all
      leases of the Company and each of its subsidiaries are valid and subsisting
      and
      in full force and effect.

     

    (m) Actions
      Pending.
      There
      is no action, suit, claim, investigation, arbitration, alternate dispute
      resolution proceeding or any other proceeding pending or, to the knowledge
      of
      the Company, threatened against the Company or any subsidiary which questions
      the validity of this Agreement or any of the other Transaction Documents or
      the
      transactions contemplated hereby or thereby or any action taken or to be taken
      pursuant hereto or thereto. There is no action, suit, claim, investigation,
      arbitration, alternate dispute resolution proceeding or any other proceeding
      pending or, to the knowledge of the Company, threatened, against or involving
      the Company, any subsidiary or any of their respective properties or assets.
      There are no outstanding orders, judgments, injunctions, awards or decrees
      of
      any court, arbitrator or governmental or regulatory body against the Company
      or
      any subsidiary or any officers or directors of the Company or subsidiary in
      their capacities as such.

     

    (n) Compliance
      with Law.
      The
      business of the Company and the business of the subsidiaries has been and is
      presently being conducted in accordance with all applicable federal, state
      and
      local governmental laws, rules, regulations and ordinances, except for such
      noncompliance that, individually or in the aggregate, would not cause a Material
      Adverse Effect. Neither the Company, nor the subsidiaries has received notice
      of
      any violation of applicable federal, state or local governmental laws, rules,
      regulations and ordinances. The Company and each of its subsidiaries have all
      franchises, permits, licenses, consents and other governmental or regulatory
      authorizations and approvals necessary for the conduct of its business as now
      being conducted by it unless the failure to possess such franchises, permits,
      licenses, consents and other governmental or regulatory authorizations and
      approvals, individually or in the aggregate, could not reasonably be expected
      to
      have a Material Adverse Effect.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (o) Taxes.
      The
      Company and each of the subsidiaries has accurately prepared and filed all
      federal, state and other tax returns required by law to be filed by it, has
      paid
      or made provisions for the payment of all taxes shown to be due and all
      additional assessments, and adequate provisions have been and are reflected
      in
      the financial statements of the Company and the subsidiaries for all current
      taxes and other charges to which the Company or any subsidiary is subject and
      which are not currently due and payable. None of the federal income tax returns
      of the Company have been audited by the Internal Revenue Service, or with
      respect to the subsidiaries, none of their respective tax returns have been
      audited by any governmental entity in the jurisdiction in which each such
      subsidiary may be subject to taxation. Neither the Company, nor any subsidiary,
      has any knowledge of any additional assessments, adjustments or contingent
      tax
      liability (whether federal, state or foreign) of any nature whatsoever, whether
      pending or threatened against the Company or any subsidiary for any period,
      nor
      of any basis for any such assessment, adjustment or contingency.

     

    (p) Certain
      Fees.
      No
      brokers, finders or financial advisory fees or commissions will be payable
      by
      the Company or any subsidiary with respect to the transactions contemplated
      by
      this Agreement.

     

    (q) Disclosure.
      Neither
      this Agreement or the Schedules hereto nor any other documents, certificates
      or
      instruments furnished to the Purchaser by or on behalf of the Company or any
      subsidiary in connection with the transactions contemplated by this Agreement
      contain any untrue statement of a material fact or omit to state a material
      fact
      necessary in order to make the statements made herein or therein, in the light
      of the circumstances under which they were made herein or therein, not
      misleading.

     

    (r) Intellectual
      Property.
      The
      Company and each of the subsidiaries owns or possesses all patents, trademarks,
      domain names (whether or not registered) and any patentable improvements or
      copyrightable derivative works thereof, websites and intellectual property
      rights relating thereto, service marks, trade names, copyrights, licenses and
      authorizations, and all rights with respect to the foregoing, which are
      necessary for the conduct of its business as now conducted without any conflict
      with the rights of others.

     

    (s) Environmental
      Compliance.
      The
      Company and each of its subsidiaries have obtained all material approvals,
      authorization, certificates, consents, licenses, orders and permits or other
      similar authorizations of all governmental authorities, or from any other
      person, that are required under any Environmental Laws. Except as set forth
      on
Schedule
      2.1(s),
      the
      Company and its subsidiaries are in material compliance with applicable
      environmental requirements in the operation of their respective business, except
      to the extent that any non compliance, individually or in the aggregate, does
      not cause a Material Adverse Effect. “Environmental
      Laws”
shall
      mean all applicable laws relating to the protection of the environment
      including, without limitation, all requirements pertaining to reporting,
      licensing, permitting, controlling, investigating or remediating emissions,
      discharges, releases or threatened releases of hazardous substances, chemical
      substances, pollutants, contaminants or toxic substances, materials or wastes,
      whether solid, liquid or gaseous in nature, into the air, surface water,
      groundwater or land, or relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of hazardous
      substances, chemical substances, pollutants, contaminants or toxic substances,
      material or wastes, whether solid, liquid or gaseous in nature. The Company
      has
      all necessary governmental approvals required under all Environmental Laws
      and
      used in its business or in the business of any of its subsidiaries. The Company
      and each of its subsidiaries are also in compliance with all other limitations,
      restrictions, conditions, standards, requirements, schedules and timetables
      required or imposed under all Environmental Laws. Except for such instances
      as
      would not individually or in the aggregate have a Material Adverse Effect,
      there
      are no past or present events, conditions, circumstances, incidents, actions
      or
      omissions relating to or in any way affecting the Company or its subsidiaries
      that violate or may violate any Environmental Law after the Closing Date or
      that
      may give rise to any environmental liability, or otherwise form the basis of
      any
      claim, action, demand, suit, proceeding, hearing, study or investigation (i)
      under any Environmental Law, or (ii) based on or related to the manufacture,
      processing, distribution, use, treatment, storage (including without limitation
      underground storage tanks), disposal, transport or handling, or the emission,
      discharge, release or threatened release of any hazardous substance.


     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (t) Books
      and Record Internal Accounting Controls.
      The
      books and records of the Company and its subsidiaries accurately reflect in
      all
      material respects the information relating to the business of the Company and
      the subsidiaries, the location and collection of their assets, and the nature
      of
      all transactions giving rise to the obligations or accounts receivable of the
      Company or any subsidiary. The Company and each of its subsidiaries maintain
      a
      system of internal accounting controls sufficient, in the judgment of the
      Company, to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    (u) Material
      Agreements.
      Except
      as set forth on Schedule
      2.1(u)
      or with
      respect to the transactions contemplated herein, neither the Company nor any
      subsidiary is a party to any written or oral contract, instrument, agreement,
      commitment, obligation, plan or arrangement, a copy of which would be required
      to be filed with the Commission as an exhibit to a registration statement on
      Form S-1 or other applicable form (collectively, “Material
      Agreements”)
      if the
      Company or any subsidiary were registering securities under the Securities
      Act.
      Except as set forth on Schedule
      2.1(u),
      the
      Company and each of its subsidiaries has in all material respects performed
      all
      the obligations required to be performed by them to date under the foregoing
      agreements, have received no notice of default and are not in default under
      any
      Material Agreement now in effect, the result of which could cause a Material
      Adverse Effect. 

     

    (v) Transactions
      with Affiliates.
      Except
      as set forth in the Financial Statements, the Commission Documents or
Schedule
      2.1(v),
      there
      are no loans, leases, agreements, contracts, royalty agreements, management
      contracts or arrangements or other continuing transactions between (a) the
      Company or any subsidiary on the one hand, and (b) on the other hand, any
      officer, employee, consultant or director of the Company, or any of its
      subsidiaries, or any person owning any capital stock of the Company or any
      subsidiary or any member of the immediate family of such officer, employee,
      consultant, director or affiliate or any corporation or other entity controlled
      by such officer, employee, consultant, director or affiliate, or a member of
      the
      immediate family of such officer, employee, consultant, director or
      affiliate.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (w) Securities
      Act of 1933.
      Based
      in material part upon the representations herein of the Purchaser, the Company
      has complied and will comply with all applicable federal and state securities
      laws in connection with the offer, issuance and sale of the Shares and the
      Warrants hereunder. Neither the Company nor anyone acting on its behalf,
      directly or indirectly, has or will sell, offer to sell or solicit offers to
      buy
      any of the Securities or similar securities to, or solicit offers with respect
      thereto from, or enter into any preliminary conversations or negotiations
      relating thereto with, any person, or has taken or will take any action, so
      as
      to bring the issuance and sale of any of the Securities under the registration
      provisions of the Securities Act and applicable state securities laws, and
      neither the Company nor any of its affiliates, nor any person acting on its
      or
      their behalf, has engaged in any form of general solicitation or general
      advertising (within the meaning of Regulation D under the Securities Act) in
      connection with the offer or sale of any of the Securities.

     

    (x) Governmental
      Approvals.
      Except
      for the filing of any notice prior or subsequent to the Closing Date that may
      be
      required under applicable state and/or federal securities laws (which if
      required, shall be filed on a timely basis), including the filing of a Form
      D
      and a registration statement or statements pursuant to the Registration Rights
      Agreement, and the filing of the Certificate of Designation with the Secretary
      of State for the State of Delaware, no authorization, consent, approval,
      license, exemption of, filing or registration with any court or governmental
      department, commission, board, bureau, agency or instrumentality, domestic
      or
      foreign, is or will be necessary for, or in connection with, the execution
      or
      delivery of the Debenture, or for the performance by the Company of its
      obligations under the Transaction Documents.

     

    (y) Employees.
      Neither
      the Company nor any subsidiary has any collective bargaining arrangements or
      agreements covering any of its employees. Except as set forth on Schedule
      2.1(y),
      neither
      the Company nor any subsidiary has any employment contract, agreement regarding
      proprietary information, non-competition agreement, non-solicitation agreement,
      confidentiality agreement, or any other similar contract or restrictive
      covenant, relating to the right of any officer, employee or consultant to be
      employed or engaged by the Company or such subsidiary. No officer, consultant
      or
      key employee of the Company or any subsidiary whose termination, either
      individually or in the aggregate, could have a Material Adverse Effect, has
      terminated or, to the knowledge of the Company, has any present intention of
      terminating his or her employment or engagement with the Company or any
      subsidiary.

     

    (z) Absence
      of Certain Developments.
      Except
      as set forth on Schedule
      2.1(z) or
      in the
      Commission Documents, since June 30, 2008, neither the Company nor any
      subsidiary has:

     

    (i) issued
      any stock, bonds or other corporate securities or any rights, options or
      warrants with respect thereto;

     

    (ii) borrowed
      any amount or incurred or become subject to any liabilities (absolute or
      contingent) except current liabilities incurred in the ordinary course of
      business which are comparable in nature and amount to the current liabilities
      incurred in the ordinary course of business during the comparable portion of
      its
      prior fiscal year, as adjusted to reflect the current nature and volume of
      the
      Company’s or such subsidiary’s business;

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (iii) discharged
      or satisfied any lien or encumbrance or paid any obligation or liability
      (absolute or contingent), other than current liabilities paid in the ordinary
      course of business;

     

    (iv) declared
      or made any payment or distribution of cash or other property to stockholders
      with respect to its stock, or purchased or redeemed, or made any agreements
      so
      to purchase or redeem, any shares of its capital stock;

     

    (v) sold,
      assigned or transferred any other tangible assets, or canceled any debts or
      claims, except in the ordinary course of business;

     

    (vi) sold,
      assigned or transferred any patent rights, trademarks, trade names, copyrights,
      trade secrets or other intangible assets or intellectual property rights, or
      disclosed any proprietary confidential information to any person except to
      customers in the ordinary course of business or to the Purchaser or its
      representatives;

     

    (vii) suffered
      any substantial losses or waived any rights of material value, whether or not
      in
      the ordinary course of business, or suffered the loss of any material amount
      of
      prospective business;

     

    (viii) made
      any
      changes in employee compensation except in the ordinary course of business
      and
      consistent with past practices;

     

    (ix) made
      capital expenditures or commitments therefor that aggregate in excess of
      $100,000;

     

    (x) entered
      into any other transaction other than in the ordinary course of business, or
      entered into any other material transaction, whether or not in the ordinary
      course of business;

     

    (xi) made
      charitable contributions or pledges in excess of $25,000;

     

    (xii) suffered
      any material damage, destruction or casualty loss, whether or not covered by
      insurance;

     

    (xiii) experienced
      any material problems with labor or management in connection with the terms
      and
      conditions of their employment;

     

    (xiv) effected
      any two or more events of the foregoing kind which in the aggregate would be
      material to the Company or its subsidiaries; or

     

    (xv) entered
      into an agreement, written or otherwise, to take any of the foregoing
      actions.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (aa) Public
      Utility Holding Company Act and Investment Company Act Status.
      The
      Company is not a “holding company” or a “public utility company” as such terms
      are defined in the Public Utility Holding Company Act of 1935, as amended.
      The
      Company is not, and as a result of and immediately upon the Closing will not
      be,
      an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
      amended.

     

    (bb) ERISA.
      No
      liability to the Pension Benefit Guaranty Corporation has been incurred with
      respect to any Plan (as defined below) by the Company or any of its subsidiaries
      which is or would be materially adverse to the Company and its subsidiaries.
      The
      execution and delivery of this Agreement and the issuance and sale of the
      Preferred Shares will not involve any transaction which is subject to the
      prohibitions of Section 406 of the Employee Retirement Income Security Act
      of
      1974, as amended (“ERISA”),
      or in
      connection with which a tax could be imposed pursuant to Section 4975 of the
      Internal Revenue Code of 1986, as amended (the “Code”),
      provided that, if the Purchaser, or any person or entity that owns a beneficial
      interest in any of the Purchaser, is an “employee pension benefit plan” (within
      the meaning of Section 3(2) of ERISA) with respect to which the Company is
      a
“party in interest” (within the meaning of Section 3(14) of ERISA), the
      requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
      met.
      As used in this Section 2.1(bb), the term “Plan”
shall
      mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which
      is or has been established or maintained, or to which contributions are or
      have
      been made, by the Company or any subsidiary or by any trade or business, whether
      or not incorporated, which, together with the Company or any subsidiary, is
      under common control, as described in Section 414(b) or (c) of the
      Code.

     

    (cc) No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would cause
      the offering of the Securities pursuant to this Agreement to be integrated
      with
      prior offerings by the Company for purposes of the Securities Act which would
      prevent the Company from selling the Securities pursuant to Rule 506 under
      the
      Securities Act, or any applicable exchange-related stockholder approval
      provisions, nor will the Company or any of its affiliates or subsidiaries take
      any action or steps that would cause the offering of the Securities to be so
      integrated with other offerings.
      The
      Company does not have any registration statement pending before the Commission
      or currently under the Commission’s review and the Company has not in the last
      six (6) months publicly offered or sold any of its equity securities or debt
      securities convertible into shares of Common Stock.

     

    Section
      2.2 Representations,
      Warranties and Covenants of the Purchaser.
      The
      Purchaser hereby makes the following representations, warranties and covenants
      to the Company with respect solely to itself and not with respect to any other
      Purchaser:

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (a) Organization
      and Standing of the Purchaser.
      The
      Purchaser is a corporation, partnership or limited liability company duly
      incorporated or organized, validly existing and in good standing under the
      laws
      of the jurisdiction of its incorporation or organization.

     

    (b) Authorization
      and Power.
      The
      Purchaser has the requisite power and authority to enter into and perform this
      Agreement and to purchase the Debenture being sold to it hereunder. The
      execution, delivery and performance of this Agreement and the Registration
      Rights Agreement by such Purchaser and the consummation by it of the
      transactions contemplated hereby and thereby have been duly authorized by all
      necessary corporate or partnership action, and no further consent or
      authorization of such Purchaser or its Board of Directors, stockholders,
      members, managers or partners, as the case may be, is required. Each of this
      Agreement and the Registration Rights Agreement has been duly authorized,
      executed and delivered by such Purchaser and constitutes, or shall constitute
      when executed and delivered, a valid and binding obligation of the Purchaser
      enforceable against the Purchaser in accordance with the terms thereof, except
      as such enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation, conservatorship, receivership or
      similar laws relating to, or affecting generally the enforcement of, creditor’s
      rights and remedies or by other equitable principles of general
      application.

     

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

     

    
      
        
        

      

      
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    (d) Acquisition
      for Investment.
      The
      Purchaser is acquiring the Debenture solely for its own account for the purpose
      of investment and not as a nominee or with a view to or for sale in connection
      with distribution. The Purchaser does not have a present intention to sell
      the
      Debenture, nor a present arrangement (whether or not legally binding) or
      intention to effect any distribution of the Debenture to or through any person
      or entity; provided,
      however,
      that by
      making the representations herein and subject to Section 2.2(h) below, the
      Purchaser does not agree to hold the Securities for any minimum or other
      specific term and reserves the right to dispose of the Securities at any time
      in
      accordance with Federal and state securities laws applicable to such
      disposition. The Purchaser acknowledges that it is able to bear the financial
      risks associated with an investment in the Debenture and that it has been given
      full access to such records of the Company and the subsidiaries and to the
      officers of the Company and the subsidiaries and received such information
      as it
      has deemed necessary or appropriate to conduct its due diligence investigation
      and has sufficient knowledge and experience in investing in companies similar
      to
      the Company in terms of the Company’s stage of development so as to be able to
      evaluate the risks and merits of its investment in the Company.

     

    (e) Status
      of Purchaser.
      The
      Purchaser is an “accredited investor” as defined in Regulation D promulgated
      under the Securities Act. The Purchaser is not required to be registered as
      a
      broker-dealer under Section 15 of the Exchange Act and the Purchaser is not
      a
      broker-dealer.

     

    (f) Opportunities
      for Additional Information.
      The
      Purchaser acknowledges that such Purchaser has had the opportunity to ask
      questions of and receive answers from, or obtain additional information from,
      the executive officers of the Company concerning the financial and other affairs
      of the Company, and to the extent deemed necessary in light of such Purchaser’s
      personal knowledge of the Company’s affairs, such Purchaser has asked such
      questions and received answers to the full satisfaction of such Purchaser,
      and
      such Purchaser desires to invest in the Company.

     

    (g) No
      General Solicitation.
      The
      Purchaser acknowledges that the Debenture were not offered to such Purchaser
      by
      means of any form of general or public solicitation or general advertising,
      or
      publicly disseminated advertisements or sales literature, including (i) any
      advertisement, article, notice or other communication published in any
      newspaper, magazine, or similar media, or broadcast over television or radio,
      or
      (ii) any seminar or meeting to which such Purchaser was invited by any of the
      foregoing means of communications.

     

    (h) Rule
      144.
      The
      Purchaser understands that the Securities must be held indefinitely unless
      such
      Securities are registered under the Securities Act or an exemption from
      registration is available. Such Purchaser acknowledges that such Purchaser
      is
      familiar with Rule 144 of the rules and regulations of the Commission, as
      amended, promulgated pursuant to the Securities Act (“Rule
      144”),
      and
      that such person has been advised that Rule 144 permits resales only under
      certain circumstances. Such Purchaser understands that to the extent that Rule
      144 is not available, such Purchaser will be unable to sell any Securities
      without either registration under the Securities Act or the existence of another
      exemption from such registration requirement.

     

    (i) General.
      The
      Purchaser understands that the Securities are being offered and sold in reliance
      on a transactional exemption from the registration requirement of Federal and
      state securities laws and the Company is relying upon the truth and accuracy
      of
      the representations, warranties, agreements, acknowledgments and understandings
      of such Purchaser set forth herein in order to determine the applicability
      of
      such exemptions and the suitability of such Purchaser to acquire the
      Securities.

     

    
      
        
        

      

      
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    (j) Trading
      Activities.
      The
      Purchaser agrees that it shall not, directly or indirectly, in its own capacity
      or through an agent, engage in any short sales (as defined in Rule 200 of
      Regulation SHO under the Exchange Act) with respect to the Conversion Shares,
      or
      any hedging transaction or securitization, including obtaining shares of Common
      Stock to borrow, which establishes any short position with respect to the Common
      Stock, whether on a U.S. domestic exchange or any foreign exchange. Other than
      consummating the transactions contemplated hereunder, such Purchaser has not
      directly or indirectly, nor has any person acting on behalf of or pursuant
      to
      any understanding with such Purchaser, executed any purchases or sales,
      including short sales, of the securities of the Company during the period
      commencing from the time that such Purchaser first received from the Company
      or
      any other person (i) a term sheet (written or oral) or (ii) a draft of any
      Transaction Document, in each case setting forth the material terms of the
      transactions contemplated hereunder, until the date hereof.

     

    (k) Certain
      Fees.
      Except
      as set forth on Schedule
      2.2(l)
      hereto,
      no brokers, finders or financial advisory fees or commissions will be payable
      by
      the Purchaser with respect to the transactions contemplated by this
      Agreement.

     

    ARTICLE
      III

     

    Covenants

     

    The
      Company covenants with each of the Purchaser as follows, which covenants are
      for
      the benefit of the Purchaser and their permitted assignees
      hereunder.

     

    Section
      3.1 Securities
      Compliance.
      The
      Company shall notify the Commission in accordance with its rules and regulations
      of the transactions contemplated by any of the Transaction Documents, including
      filing a Form D with respect to the Debenture, Preferred Shares and Common
      Conversion Shares as required under Regulation D and applicable “blue sky” laws,
      and shall take all other necessary action and proceedings as may be required
      and
      permitted by applicable law, rule and regulation, for the legal and valid
      issuance of the Securities.

     

    Section
      3.2 Registration
      and Listing.
      The
      Company shall (a) either (i) cause its Common Stock to continue to be registered
      under Section 12(b) or 12(g) of the Exchange Act, or (ii) continue to
      voluntarily file all reports required to be filed as if the Company were so
      registered, and in any event shall comply in all respects with its reporting
      and
      filing obligations under the Exchange Act and the Company shall not cease filing
      reports under the Exchange Act even if the Exchange Act or the rules and
      regulations thereunder would permit such termination, (b) comply with all
      requirements related to any registration statement filed pursuant to this
      Agreement, and (c) not take any action or file any document (whether or not
      permitted by the Securities Act or the rules promulgated thereunder) to
      terminate or suspend such registration or to terminate or suspend its reporting
      and filing obligations under the Exchange Act or Securities Act, except as
      permitted herein. The Company will take all action necessary to continue the
      listing or trading of its Common Stock on the OTC Bulletin Board or other
      exchange or market on which the Common Stock is trading or may be traded in
      the
      future. Upon the request of the Purchaser, the Company shall deliver to the
      Purchaser a written certification of a duly authorized officer as to whether
      it
      has complied with such requirements. Subject to the terms of the Transaction
      Documents, the Company further covenants that it will take such further action
      as the Purchaser may reasonably request, all to the extent required from time
      to
      time, to enable the Purchaser to sell the Shares without registration under
      the
      Securities Act within the limitation of the exemptions provided by Rule
      144. 

     

    
      
        
        

      

      
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    Section
      3.3 Inspection
      Rights.
      The
      Company shall permit, during normal business hours and upon reasonable request
      and reasonable notice, the Purchaser or any employees, agents or representatives
      thereof, so long as the Purchaser shall beneficially own equity securities
      of
      the Company, in the aggregate, representing more than 5% of the total combined
      voting power of all voting securities then outstanding, for purposes reasonably
      related to the Purchaser’s interests as a stockholder, to examine and make
      reasonable copies of and extracts from the records and books of account of,
      and
      visit and inspect the properties, assets, operations and business of the Company
      and any subsidiary, and to discuss the affairs, finances and accounts of the
      Company and any subsidiary with any of its officers, consultants, directors,
      and
      key employees, except for any such information that shall be considered material
      non-public information by the Company. 

     

    Section
      3.4 Compliance
      with Laws.
      The
      Company shall comply, and cause each subsidiary to comply, with all applicable
      laws, rules, regulations and orders, noncompliance with which could have a
      Material Adverse Effect.

     

    Section
      3.5 Keeping
      of Records and Books of Account.
      The
      Company shall keep and cause each subsidiary 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
      its 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.

     

    Section
      3.6 Reporting
      Requirements.
      If the
      Commission ceases making periodic reports filed under the Exchange Act available
      via the Internet, then at a Purchaser’s request the Company shall furnish the
      following to such Purchaser so long as such Purchaser shall beneficially own
      any
      Shares:

     

    (a) Quarterly
      Reports filed with the Commission on Form 10-Q as soon as practical after the
      document is filed with the Commission, and in any event within five (5) days
      after the document is filed with the Commission;

     

    (b) Annual
      Reports filed with the Commission on Form 10-K as soon as practical after the
      document is filed with the Commission, and in any event within five (5) days
      after the document is filed with the Commission; and

     

    
      
        
        

      

      
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    (c) Copies
      of
      all notices and information, including without limitation notices and proxy
      statements in connection with any meetings, that are provided to holders of
      shares of Common Stock, contemporaneously with the delivery of such notices
      or
      information to such holders of Common Stock.

     

    Section
      3.7 Other
      Agreements.
      The
      Company shall not enter into any agreement in which the terms of such agreement
      would restrict or impair the right or ability of the Company or any subsidiary
      to perform under any Transaction Document.

     

    Section
      3.8 Amendments.
      The
      Company shall not amend or waive any provision of the Certificate or Bylaws
      of
      the Company in any way that would adversely affect the liquidation preferences,
      dividends rights, conversion rights, voting rights or redemption rights of
      the
      Preferred Shares; provided,
      however,
      that
      any creation and issuance of another series of Junior Stock (as defined in
      the
      Certificate of Designation) shall not be deemed to materially and adversely
      affect such rights, preferences or privileges.

     

    Section
      3.9 Other
      Agreements.
      The
      Company shall not enter into any agreement in which the terms of such agreement
      would restrict or impair the right or ability of the Company or any subsidiary
      to perform under any Transaction Document.

     

    Section
      3.10 Distributions.
      So long
      as any Debenture or any Preferred Shares remain outstanding, the Company agrees
      that it shall not (i) declare or pay any dividends or make any distributions
      to
      any holder(s) of Common Stock without prior written consent from a majority
      of
      the holders of the Debenture (on an as converted basis) or the Preferred Shares
      at such time, or (ii) purchase or otherwise acquire for value, directly or
      indirectly, any Common Stock or other equity security of the Company, other
      than
      pursuant to a repurchase plan approved by the Company’s board of
      directors.

     

    
      
        
        

      

      
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    Section
      3.11  Status
      of Dividends.
      The
      Company covenants and agrees that (i) no Federal income tax return or claim
      for
      refund of Federal income tax or other submission to the Internal Revenue Service
      (the “Service”)
      will
      adversely affect the Debenture, Preferred Shares, any other series of its
      Preferred Stock, or the Common Stock, and no deduction shall operate to
      jeopardize the availability to Purchasers of the dividends received deduction
      provided by Section 243(a)(1) of the Code or any successor provision, (ii)
      in no
      report to shareholders or to any governmental body having jurisdiction over
      the
      Company or otherwise will it treat the Preferred Shares other than as equity
      capital or the dividends paid thereon other than as dividends paid on equity
      capital unless required to do so by a governmental body having jurisdiction
      over
      the accounts of the Company or by a change in generally accepted accounting
      principles required as a result of action by an authoritative accounting
      standards setting body, and (iii) it will take no action which would result
      in
      the dividends paid by the Company on the Preferred Shares out of the Company’s
      current or accumulated earnings and profits being ineligible for the dividends
      received deduction provided by Section 243(a)(1) of the Code. The preceding
      sentence shall not be deemed to prevent the Company from designating the
      Preferred Stock as “Convertible Preferred Stock” in its annual and quarterly
      financial statements in accordance with its prior practice concerning other
      series of preferred stock of the Company. In the event that the Purchasers
      have
      reasonable cause to believe that dividends paid by the Company on the Preferred
      Shares out of the Company’s current or accumulated earnings and profits will not
      be treated as eligible for the dividends received deduction provided by Section
      243(a)(1) of the Code, or any successor provision, the Company will, at the
      reasonable request of the Purchasers of 51% of the outstanding Preferred Shares,
      join with the Purchasers in the submission to the Service of a request for
      a
      ruling that dividends paid on the Shares will be so eligible for Federal income
      tax purposes, at the Purchasers expense. In addition, the Company will
      reasonably cooperate with the Purchasers (at Purchasers’ expense) in any
      litigation, appeal or other proceeding challenging or contesting any ruling,
      technical advice, finding or determination that earnings and profits are not
      eligible for the dividends received deduction provided by Section 243(a)(1)
      of
      the Code, or any successor provision to the extent that the position to be
      taken
      in any such litigation, appeal, or other proceeding is not contrary to any
      provision of the Code. Notwithstanding the foregoing, nothing herein contained
      shall be deemed to preclude the Company from claiming a deduction with respect
      to such dividends if (i) the Code shall hereafter be amended, or final Treasury
      regulations thereunder are issued or modified, to provide that dividends on
      the
      Preferred Shares or Common Conversion Shares should not be treated as dividends
      for Federal income tax purposes or that a deduction with respect to all or
      a
      portion of the dividends on the Shares is allowable for Federal income tax
      purposes, or (ii) in the absence of such an amendment, issuance or modification
      and after a submission of a request for ruling or technical advice, the Service
      shall issue a published ruling or advise that dividends on the Shares should
      not
      be treated as dividends for Federal income tax purposes. If the Service
      specifically determines that the Preferred Shares or Common Conversion Shares,
      constitute debt, the Company may file protective claims for refund.

     

    Section
      3.12  Use
      of
      Proceeds.
      The net
      proceeds from the sale of the Securities hereunder shall be used by the Company
      for working capital and general corporate purposes and not to redeem any Common
      Stock or securities convertible, exercisable or exchangeable into Common Stock
      or to settle any outstanding litigation. 

     

    Section
      3.13 Disclosure
      of Transaction.
      The
      Company shall issue a press release describing the material terms of the
      transactions contemplated hereby (the “Press
      Release”)
      as
      soon as practicable after the Closing but in no event later than 9:00 A.M.
      Eastern Time on the first Trading Day following the Closing. The Company shall
      also file with the Commission a Current Report on Form 8-K (the “Form
      8-K”)
      describing the material terms of the transactions contemplated hereby (and
      attaching as exhibits thereto this Agreement, the form of Debenture, the
      Registration Rights Agreement, the Certificate of Designation, the Share Escrow
      Agreement, the Management Escrow Agreement and the Press Release) as soon as
      practicable following the Closing Date but in no event more than four (4)
      Trading Days following the Closing Date, which Press Release and Form 8-K shall
      be subject to prior review and comment by counsel for the Purchaser.
“Trading
      Day”
means
      any day during which the OTC Bulletin Board (or other quotation venue or
      principal exchange on which the Common Stock is traded) shall be open for
      trading. 

     

    
      
        
        

      

      
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    Section
      3.14 Disclosure
      of Material Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf has provided or will provide any Purchaser or its agents or counsel
      with
      any information that the Company believes constitutes material non-public
      information (other than with respect to the transactions contemplated by this
      Agreement), unless prior thereto such Purchaser shall have executed a written
      agreement regarding the confidentiality and use of such information.  The
      Company understands and confirms that the Purchaser shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company.

     

    Section
      3.15 Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Shares may be pledged by a Purchaser
      in
      connection with a bona fide
      margin
      agreement or other loan or financing arrangement that is secured by the Common
      Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
      or
      assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
      of
      Common Stock shall be required to provide the Company with any notice thereof
      or
      otherwise make any delivery to the Company pursuant to this Agreement or any
      other Transaction Document; provided that a Purchaser and its pledgee shall
      be
      required to comply with the provisions of Article V hereof in order to effect
      a
      sale, transfer or assignment of Common Stock to such pledgee. At the Purchaser's
      expense, the Company hereby agrees to execute and deliver such documentation
      as
      a pledgee of the Common Stock may reasonably request in connection with a pledge
      of the Common Stock to such pledgee by a Purchaser.

     

    Section
      3.16 Form
      S-1 Eligibility.
      The
      Company currently meets the “registrant eligibility” and transaction
      requirements set forth in the general instructions to Form S-1 applicable to
      “resale” registrations on Form S-1. 

     

    Section
      3.17 Sarbanes-Oxley
      Act.
      The
      Company shall use its best efforts to be in compliance with the applicable
      provisions of the Sarbanes-Oxley Act of 2002, and the rules and regulations
      promulgated thereunder, as required under such Act.

     

    Section
      3.18 No
      Commissions in connection with Conversion of Debenture and Conversion of
      Preferred Shares.
      In
      connection with the conversion of the Debenture into Preferred Shares and the
      subsequent conversion of the Preferred Shares into Common Stock, neither the
      Company nor any Person acting on its behalf will take any action that would
      result in the Conversion Shares being exchanged by the Company other than with
      the then existing holders of the Debenture or Preferred Shares, as the case
      may
      be, exclusively where no commission or other remuneration is paid or given
      directly or indirectly for soliciting the exchange in compliance with Section
      3(a)(9) of the Securities Act. 

     

    Section
      3.19  Post-Closing
      Covenants.
      The
      Company shall use its best efforts to (i) hire a Chief Financial Officer, (ii)
      hire an Investor Relations Officer and (iii) fulfill NASDAQ’s corporate
      governance requirements including but not limited to appointing three persons
      to
      serve as “independent” directors (as such term is defined under the NASDAQ Stock
      Market rules) on the Company’s Board of Directors and forming the Audit
      Committee and the Compensation Committee of the Company’s Board of Directors.
      The Company will perform its obligations within four months of the Closing
      Date
      with respect to clauses (i) and (ii) and within one month after the Closing
      Date
      with respect to clause (iii). Such persons referred to in clauses (i), (ii)
      and
      (iii) shall be approved by the Purchaser, which approval the Purchaser shall
      not
      unreasonably withhold. The Company will enter into the Management Escrow
      Agreement, pursuant to which $750,000 of the Purchase Price shall be delivered
      into an escrow account maintained by Loeb & Loeb LLP, which funds shall be
      released in installments of $250,000 upon the appointment of (i) a Chief
      Financial Officer, (ii) a Vice President of Investor Relations, and (iii) upon
      the Company’s compliance with NASDAQ’s corporate governance requirements as set
      forth in clause (iii) above.

     

    
      
        
        

      

      
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    Section
      3.20 Subsequent
      Financings. 

     

    (a) For
      a
      period of twenty-four (24) months following the Closing Date, subject to Section
      3.22(e), the Company covenants and agrees to promptly notify (in no event later
      than five (5) days after making or receiving an applicable offer) in writing
      (a
      "Rights
      Notice")
      the
      Purchaser of all of the terms and conditions of any proposed offer or sale
      to,
      or exchange with (or other type of distribution to) any third party (a
“Subsequent
      Financing”),
      of
      Common Stock or any debt or equity securities convertible, exercisable or
      exchangeable into Common Stock. The Purchaser shall have the right, for a period
      of twenty (20) calendar days following receipt of the Rights Notice (the “Option
      Period”), to accept or reject the right to invest in the Subsequent Financing
      (“First Refusal Right”) by written notice to the Company. If the Purchaser
      elects to exercise its First Refusal Rights, it shall deliver a notice of same
      to the Company within the Option Period and then the Company shall be obligated
      to pursue the Subsequent Financing with the Purchaser on the same terms and
      conditions as set forth in the Rights Notice. If, and only if, the Company
      receives written notice from the Purchaser that it will not exercise its First
      Refusal Rights, then and only then, may the Company pursue the Subsequent
      Financing with a third party; provided that, such third party Subsequent
      Financing shall: (i) not commence until after the expiration of the Option
      Period; (ii) close within thirty (30) days of the expiration of the Option
      Period (“Third Party Closing Date”); and (iii) be carried out on the same terms
      and conditions as set forth in the Rights Notice. Delivery of any Rights Notice
      constitutes a representation and warranty by the Company that there are no
      other
      material terms and conditions, arrangements, agreements or otherwise except
      for
      those disclosed in the Rights Notice, to provide additional compensation to
      any
      party participating in any proposed Subsequent Financing, including, but not
      limited to, additional compensation based on changes in the Purchase Price
      or
      any type of reset or adjustment of a purchase or conversion price or to issue
      additional securities at any time after the closing date of a Subsequent
      Financing. If the closing of the third party Subsequent Financing does not
      occur
      on the Third Party Closing Date, any closing of the third party Subsequent
      Financing or any other Subsequent Financing shall be subject to all of the
      provisions of this Section 3.22(a), including, without limitation, the delivery
      of a new Rights Notice. The provisions of this Section 3.22(a) shall not apply
      to issuances of securities in a Permitted Financing. 

     

    (b) For
      purposes of this Agreement, a Permitted Financing (as defined hereinafter)
      shall
      not be considered a Subsequent Financing. A "Permitted
      Financing"
      shall
      mean (i) securities issued (other than for cash) in connection with a merger,
      acquisition, or consolidation, (ii) securities issued pursuant to the conversion
      or exercise of convertible or exercisable securities issued or outstanding
      on or
      prior to the date of this Agreement or issued pursuant to this Agreement (so
      long as the conversion or exercise price in such securities are not amended
      to
      lower such price and/or adversely affect the Purchasers), (iii) securities
      issued in connection with bona fide strategic license agreements or other
      partnering arrangements so long as such issuances are not for the purpose of
      raising capital, (iv) Common Stock issued or the issuance or grants of options
      to purchase Common Stock pursuant to the Company’s stock option plans and
      employee stock purchase plans outstanding as they exist on the date of this
      Agreement, (v) the payment of dividends on the Preferred Shares in shares of
      Common Stock, and, (vi) any warrants issued to the placement agent and its
      designees for the transactions contemplated by this Agreement. 

     

    
      
        
        

      

      
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    (c) So
      long
      as any Debenture or Preferred Shares remain outstanding, the Company agrees
      that
      it shall not issue any “Variable Rate Securities” for a period of two (2) years
      from the Closing Date. “Variable
      Rate Securities”
shall
      mean any debt or equity securities that are convertible into, exchangeable
      or
      exercisable for, or include the right to receive additional shares of, Common
      Stock either (A) at a conversion, exercise or exchange rate or other price
      that
      is based upon, or varies with, the trading prices of or quotations for the
      shares of Common Stock at any time after the initial issuance of such debt
      or
      equity securities or (B) with a conversion, exercise or exchange price that
      is
      subject to being reset at some future date after the initial issuance of such
      debt or equity security based solely upon the occurrence of specified or
      contingent events directly or indirectly related to the operations of the
      Company or the market for the Common Stock.

    


    (d) For
      the
      period commencing on the Closing Date and ending on the date that is one hundred
      eighty (180) days following the effective date of the Registration Statement
      (as
      defined in the Registration Rights Agreement), and any additional registration
      statements thereunder, the Company shall not file any registration statement
      under the Securities Act without the prior written consent of the Purchasers.
      

    


    (e) Disclosure
      of Material Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf will provide the Purchaser or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto the Company shall have given three (3) business days notice that
      it intends to disclose such information to the Purchaser (“Inside Information
      Notice”) and such Purchaser shall have agreed in writing that it is willing to
      accept such information, subject to a non-disclosure agreement to be executed
      by
      the Purchaser. If the Purchaser does not agree to accept such information,
      it
      will be deemed to have waived its rights pursuant to Section 3.22 (a) in
      connection with the Subsequent Financing contemplated in the related Inside
      Information Notice, but not for any additional Subsequent Financings for which
      it may be entitled to receive notice hereunder. The Company understands and
      confirms that the Purchaser will rely on the foregoing representations in
      effecting transactions in securities of the Company.

     

    Section
      3.21  Reservation
      of Shares.
      So long
      as any of the Debenture or the Preferred Shares remain outstanding, the Company
      shall take all action necessary to at all times have authorized, and reserved
      for the purpose of issuance, (i) no less than one hundred ten percent (110%)
      of
      the aggregate number of Preferred Stock needed to provide for the issuance
      of
      the Preferred Shares upon conversion of the Debenture and (ii) no less than
      one
      hundred ten percent (110%) of the aggregate number of shares of Common Stock
      needed to provide for the issuance of the Common Conversion Shares upon
      conversion of the Preferred Shares.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    Section
      3.22  Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates, registered in the name of
      the
      Purchaser or its respective nominee(s), for the Preferred
      Shares and Conversion Shares, as applicable, in such amounts as specified from
      time to time by the Purchaser to the Company upon conversion of the Debenture
      or
      the Preferred Shares, respectively, in the form of Exhibit
      I
      attached
      hereto (the “Irrevocable
      Transfer Agent Instructions”).
      Prior
      to registration of the Common Conversion Shares under the Securities Act, all
      such certificates shall bear the restrictive legend specified in Section 5.1
      of
      this Agreement. The Company warrants that no instruction other than the
      Irrevocable Transfer Agent Instructions referred to in this Section 3.22 will
      be
      given by the Company to its transfer agent and that 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 Registration Rights Agreement. If
      the
      Purchaser provides the Company with an opinion of counsel, in a generally
      acceptable form, to the effect that (i) a public sale, assignment or transfer
      of
      the Securities may be made without registration under the Securities Act or
      (ii)
      such Securities can be sold pursuant to Rule 144 without any restriction as
      to
      the number of securities acquired as of a particular date that can then be
      immediately sold, the Company shall permit the transfer, and, in the case of
      the
      Shares, promptly instruct its transfer agent to issue one or more certificates
      in such name and in such denominations as specified by the Purchaser and without
      any restrictive legend. The Company acknowledges that a breach by it of its
      obligations under this Section 3.22 will cause irreparable harm to the
      Purchasers by vitiating the intent and purpose of the transactions contemplated
      hereby. Accordingly, the Company acknowledges that the remedy at law for a
      breach of its obligations under this Section 3.22 will be inadequate and agrees,
      in the event of a breach or threatened breach by the Company of the provisions
      of this Section 3.22, that the Purchaser shall be entitled, in addition to
      all
      other available remedies, to an order and/or injunction restraining any breach
      and requiring immediate issuance and transfer, without the necessity of showing
      economic loss and without any bond or other security being
      required.

     

    Section
      3.23  Disposition
      of Assets.
      So long
      as the Debenture or any Preferred Shares remain outstanding, neither the Company
      nor any subsidiary shall sell, transfer or otherwise dispose of any of its
      properties, assets and rights including, without limitation, its software and
      intellectual property, to any person except for licenses or sales to customers
      in the ordinary course of business or with the prior written consent of the
      holders of a majority of the Debenture (on an as converted basis) and the
      Preferred Shares then outstanding.

     

    Section
      3.24 Increase
      in Authorized Shares of Preferred Stock.
      The
      Company shall file immediately after the closing of the transactions
      contemplated by this Agreement, an information statement on Schedule 14C with
      the Commission disclosing the approval of its Board of Directors, holders of
      a
      majority of its Common Stock and holders of its Series A Preferred Stock to
      file
      an amendment to increase its number of authorized shares of Preferred Stock
      to
      10,000,000 shares.The Company acknowledges that it shall be liable for payment
      of liquidated damages under the Debenture if the Company has not so increased
      its authorized shares of Preferred Stock by December 10, 2008.

    


    
      
        
        

      

      
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    Section
      3.25 Certificate
      of Good Standing. The
      Company covenants and agrees that if it is unable to deliver a certificate
      of
      good standing from the State of Delaware on the Closing Date, as provided in
      Section 4.2 (p), the Company shall obtain such certificate of good standing
      no
      later than one (1) business day after the date of the Closing. 

     

    Section
      3.26  Compliance
      with PRC Labor and Employment Laws. No
      later
      than sixty (60) days after the Closing the Company shall be in compliance with
      the Labor Contract Law of the PRC, which was effective on January 1, 2008.
      The
      Company agrees to engage JunZeJun Law Office to assist in such
      compliance.

     

    Section
      3.27  Cap
      on
      2003 Equity Incentive Plan.
      At any
      time, and from time to time that the Company grants awards under its 2003 Equity
      Incentive Plan, the maximum number of awards granted shall be no more than
      10%
      of the total number of shares of Common Stock issued and outstanding at such
      time.

     

    ARTICLE
      IV

     

    Closing
      Conditions and Closing Deliveries

     

    Section
      4.1 Conditions
      Precedent to the Obligation of the Company to Sell the Debenture.
      The
      obligation hereunder of the Company to issue and sell the Debenture to the
      Purchaser is subject to the satisfaction or waiver, at or before the Closing,
      of
      each of the conditions set forth below. These conditions are for the Company’s
      sole benefit and may be waived by the Company at any time in its sole
      discretion. 

     

    (a) Accuracy
      of the Purchaser’s Representations and Warranties.
      The
      representations and warranties of the Purchaser shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Date applicable
      to the Purchaser as though made at that time, except for representations and
      warranties that are expressly made as of a particular date, which shall be
      true
      and correct in all material respects as of such date.

     

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

     

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

     

    (d) Purchase
      Price.
      The
      Purchaser shall have delivered the Purchase Price by wire transfer of
      immediately available funds to a bank account designed by the Company in
      writing. 

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (e) Directors’
      Certificate.
      The
      Purchaser shall have delivered to the Company a certificate of the Director
      of
      the Purchaser, dated as of the Closing Date, confirming the accuracy of the
      Purchaser’s representations, warranties and covenants as of the Closing Date and
      confirming the compliance by the Purchaser with the Purchaser with the
      conditions precedent set forth in this Section 4.1 as of the Closing Date.
      

     

    (f) Transaction
      Documents.
      The
      Purchaser shall have executed each Transaction Documents to which it is a party.
      

     

    Section
      4.2 Conditions
      Precedent to the Obligation of the Purchaser to Purchase the
      Debenture.
      The
      obligation hereunder of the Purchaser to acquire and pay for the Debenture
      is
      subject to the satisfaction or waiver, at or before the Closing, of each of
      the
      conditions set forth below. These conditions are for the Purchaser’s sole
      benefit and may be waived by such Purchaser at any time in its sole
      discretion. 

     

    (a) Accuracy
      of the Company’s Representations and Warranties.
      Each of
      the representations and warranties of the Company in this Agreement and the
      Registration Rights Agreement shall be true and correct in all respects as
      of
      the date when made and shall be true and correct in all material respects as
      of
      the Closing Date applicable to the Purchaser as though made at that time (except
      for representations and warranties that are expressly made as of a particular
      date, which shall be true and correct in all material respects as of such
      date).

     

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

     

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

     

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

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

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

     

    (f) Material
      Adverse Effect. There
      have been no events or occurrences on or before the Closing Date which,
      individually or in the aggregate, have had or could reasonably be expected
      to
      have a Material Adverse Effect.  

     

    (g) Certificates.
      The
      Company shall cause to be delivered to the Purchaser’s prime broker dealer, at
      the address listed on Exhibit A, via overnight service, the original Debenture;
      provided however that in no event shall the Debenture be delivered after the
      first (1st)
      business day following the Closing.  

     

    (h) Officer’s
      Certificate. The
      Company shall have delivered to the Purchaser a certificate of an executive
      officer of the Company, dated as of the Closing Date, confirming the accuracy
      of
      the Company’s representations, warranties and covenants as of the Closing Date
      and confirming the compliance by the Company with the conditions precedent
      set
      forth in this Section 4.2 as of the Closing Date. 

     

    (i) Resolutions.
      The
      Board of Directors of the Company shall have adopted resolutions consistent
      with
      Section 2.1(b) hereof (the “Resolutions”).

     

    (j) Secretary’s
      Certificate.
      The
      Company shall have delivered to such Purchaser a secretary’s certificate, dated
      as of the Closing Date, certifying (i) the Resolutions, (ii) the Certificate,
      (iii) the Bylaws, each as in effect at the Closing, and (iv) the authority
      and
      incumbency of the officers of the Company executing the Transaction Documents
      and any other documents required to be executed or delivered in connection
      therewith.

     

    (k) Share
      Escrow Agreement.
      The
      Company shall have executed and delivered the Share Escrow Agreement to the
      Purchaser.

     

    (l) Management
      Escrow Agreement.
      The
      Company shall have executed and delivered the Management Escrow Agreement to
      the
      Purchaser.

     

    (m) Registration
      Rights Agreement.
      At the
      Closing, the Company shall have executed and delivered the Registration Rights
      Agreement to the Purchaser. 

     

    (n) Opinion
      of Counsel, Etc.
       At
      the
      Closing, the Purchaser shall have received an opinion of counsel to the Company,
      dated the date of the Closing, in substantially the form of Exhibit G hereto,
      and such other certificates and documents as the Purchaser or their respective
      counsel shall reasonably require incident to the Closing. 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (o) Increase
      in Authorized Shares of Preferred Stock.
      The
      Company shall have taken the actions necessary to amend its Certificate of
      Incorporation to increase its number of authorized shares of preferred stock
      to
      10,000,000 shares, including, without limitation, obtaining the required consent
      of its Board of Directors, holders of a majority of its Common Stock and holders
      of its Series A Preferred Stock. 

     

    (p) Delivery
      of Good Standing Certificate.
      The
      Company shall have (i) filed its outstanding annual franchise tax reports for
      the 2007 fiscal year and for the first two quarters of the 2008 fiscal year,
      and
      (ii) submitted payment in the amount of $31,978.93 for payment of delinquent
      franchise taxes for those periods, and shall provide evidence of the same.
      In
      the event the Company is able to obtain a good standing certificate from the
      Secretary of State of Delaware on the Closing Date, they Company shall deliver
      such good standing certificate to the Purchaser.

     

    ARTICLE
      V

     

    Stock
      Certificate Legend

     

    Section
      5.1 Legend.
      The
      Debenture, the certificate representing the Preferred Shares, when issued,
      and,
      if appropriate, the Common Conversion Shares issued upon conversion thereof,
      shall be stamped or otherwise imprinted with a legend substantially in the
      following form (in addition to any legend required by applicable state
      securities or “blue sky” laws):

     

    THESE
      SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
      OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
      DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
      STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
      THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
      PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    The
      Company agrees to reissue certificates representing any of the Common Conversion
      Shares, without the legend set forth above if at such time, prior to making
      any
      transfer of any such securities, such holder thereof shall give written notice
      to the Company describing the manner and terms of such transfer and removal
      as
      the Company may reasonably request. Such proposed transfer and removal will
      not
      be effected until: (a) either (i) the Company has received an opinion of counsel
      reasonably satisfactory to the Company, to the effect that the registration
      of
      the Common Conversion Shares under the Securities Act is not required in
      connection with such proposed transfer, (ii) a registration statement under
      the
      Securities Act covering such proposed disposition has been filed by the Company
      with the Commission and has become effective under the Securities Act and (b)
      either (i) the Company has received an opinion of counsel reasonably
      satisfactory to the Company, to the effect that registration or qualification
      under the securities or “blue sky” laws of any state is not required in
      connection with such proposed disposition, or (ii) compliance with applicable
      state securities or “blue sky” laws has been effected or a valid exemption
      exists with respect thereto. The Company will respond to any such notice from
      a
      holder within five (5) business days. In the case of any proposed transfer
      under
      this Section 5.1, the Company will use reasonable efforts to comply with any
      such applicable state securities or “blue sky” laws, but shall in no event be
      required, (x) to qualify to do business in any state where it is not then
      qualified, (y) to take any action that would subject it to tax or to the general
      service of process in any state where it is not then subject, or (z) to comply
      with state securities or “blue sky” laws of any state for which registration by
      coordination is unavailable to the Company. The restrictions on transfer
      contained in this Section 5.1 shall be in addition to, and not by way of
      limitation of, any other restrictions on transfer contained in any other section
      of this Agreement. Whenever a certificate representing the Common Conversion
      Shares is required to be issued to a Purchaser without a legend, in lieu of
      delivering physical certificates representing the Common Conversion Shares
      (provided that a registration statement under the Securities Act providing
      for
      the resale of the Common Conversion Shares is then in effect), the Company
      shall
      cause its transfer agent to electronically transmit the Common Conversion Shares
      to a Purchaser by crediting the account of such Purchaser or such Purchaser's
      Prime Broker with the Depository Trust Company (“DTC”)
      through its Deposit Withdrawal Agent Commission (“DWAC”)
      system
      (to the extent not inconsistent with any provisions of this
      Agreement).

     

    ARTICLE
      VI

     

    Indemnification

     

    Section
      6.1 Indemnification
      of Purchaser.
      The
      Company agrees to indemnify and hold harmless the Purchaser (and its respective
      directors, officers, managers, partners, members, shareholders, affiliates,
      agents, successors and assigns) from and against any and all losses,
      liabilities, deficiencies, costs, damages and expenses (including, without
      limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
      the Purchaser as a result of any inaccuracy in or breach of the representations,
      warranties or covenants made by the Company herein, and, in the event the
      Company is not in compliance with the Labor Contract Law of the PRC.
      . 

     

    Section
      6.2 Indemnification
      of Company.
      The
      Purchaser agrees, severally and not jointly, to indemnify and hold harmless
      the
      Company (and its directors, officers, managers, partners, members, shareholders,
      affiliates, agents, successors and assigns) from and against any and all losses,
      liabilities, deficiencies, costs, damages and expenses (including, without
      limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
      the Company as a result of any inaccuracy in or breach of the representations,
      warranties or covenants made by such Purchaser herein; provided,
      however,
      that
      the Purchaser shall not have any liability pursuant to this Section
      6.2
      in an
      amount exceeding the aggregate purchase price paid to the Company by the
      Purchaser in connection with this Agreement and the securities issued
      hereunder.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    Section
      6.3 Indemnification
      Procedure.
      Any
      party entitled to indemnification under this Article VI (an “indemnified party”)
      will give prompt written notice to the party required to provide indemnification
      under this Article VI (the “indemnifying party”) of any matters giving rise to a
      claim for indemnification; provided, that the failure of any party entitled
      to
      indemnification hereunder to give notice as provided herein shall not relieve
      the indemnifying party of its obligations under this Article VI except to the
      extent that the indemnifying party is actually prejudiced by such failure to
      give prompt notice. In case any action, proceeding or claim is brought against
      an indemnified party in respect of which indemnification is sought hereunder,
      the indemnifying party shall be entitled to participate in and, unless in the
      reasonable judgment of the indemnified party a conflict of interest between
      it
      and the indemnifying party may exist with respect of such action, proceeding
      or
      claim, to assume the defense thereof with counsel reasonably satisfactory to
      the
      indemnified party. In the event that the indemnifying party advises an
      indemnified party that it will contest such a claim for indemnification
      hereunder, or fails, within thirty (30) days of receipt of any indemnification
      notice to notify, in writing, such person of its election to defend, settle
      or
      compromise, at its sole cost and expense, any action, proceeding or claim (or
      discontinues its defense at any time after it commences such defense), then
      the
      indemnified party may, at its option, defend, settle or otherwise compromise
      or
      pay such action or claim. In any event, unless and until the indemnifying party
      elects in writing to assume and does so assume the defense of any such claim,
      proceeding or action, the indemnified party’s costs and expenses arising out of
      the defense, settlement or compromise of any such action, claim or proceeding
      shall be losses subject to indemnification hereunder. The indemnified party
      shall cooperate fully with the indemnifying party in connection with any
      negotiation or defense of any such action or claim by the indemnifying party
      and
      shall furnish to the indemnifying party all information reasonably available
      to
      the indemnified party which relates to such action or claim. The indemnifying
      party shall keep the indemnified party fully apprised at all times as to the
      status of the defense or any settlement negotiations with respect thereto.
      If
      the indemnifying party elects to defend any such action or claim, then the
      indemnified party shall be entitled to participate in such defense with counsel
      of its choice at its sole cost and expense. The indemnifying party shall not
      be
      liable for any settlement of any action, claim or proceeding effected without
      its prior written consent. Notwithstanding anything in this Article VI to the
      contrary, the indemnifying party shall not, without the indemnified party’s
      prior written consent, settle or compromise any claim or consent to entry of
      any
      judgment in respect thereof which imposes any future obligation on the
      indemnified party or which does not include, as an unconditional term thereof,
      the giving by the claimant or the plaintiff to the indemnified party of a
      release from all liability in respect of such claim. The indemnification
      required by this Article VI shall be made by periodic payments of the amount
      thereof during the course of investigation or defense, as and when bills are
      received or expense, loss, damage or liability is incurred, so long as the
      indemnified party irrevocably agrees to refund such moneys if it is ultimately
      determined by a court of competent jurisdiction that such party was not entitled
      to indemnification. The indemnity agreements contained herein shall be in
      addition to (a) any cause of action or similar rights of the indemnified party
      against the indemnifying party or others, and (b) any liabilities the
      indemnifying party may be subject to pursuant to the law.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VII

     

    Miscellaneous

     

    Section
      7.1 Fees
      and Expenses.
      Except
      as otherwise set forth in this Agreement and the other Transaction Documents,
      each party shall pay the fees and expenses of its advisors, counsel, accountants
      and other experts, if any, and all other expenses, incurred by such party
      incident to the negotiation, preparation, execution, delivery and performance
      of
      this Agreement. The Company shall pay all reasonable fees and expenses incurred
      by the Purchaser in connection with the enforcement of this Agreement or any
      of
      the other Transaction Documents, including, without limitation, all reasonable
      attorneys' fees and expenses but only if the Purchaser is successful in any
      litigation or arbitration relating to such enforcement. 

     

    Section
      7.2 Specific
      Enforcement, Consent to Jurisdiction. 

     

    (a) The
      Company and the Purchaser acknowledge and agree that irreparable damage would
      occur in the event that any of the provisions of this Agreement or the other
      Transaction Documents were not performed in accordance with their specific
      terms
      or were otherwise breached. It is accordingly agreed that the parties shall
      be
      entitled to an injunction or injunctions to prevent or cure breaches of the
      provisions of this Agreement [or the Registration Rights 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.

     

    (b) Each
      of
      the Company and the Purchaser (i) hereby irrevocably submits to the jurisdiction
      of the United States District Court sitting in the Southern District of New
      York
      and the courts of the State of New York located in New York county for the
      purposes of any suit, action or proceeding arising out of or relating to this
      Agreement or any of the other Transaction Documents or the transactions
      contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert
      in any such suit, action or proceeding, any claim that it is not personally
      subject to the jurisdiction of such court, that the suit, action or proceeding
      is brought in an inconvenient forum or that the venue of the suit, action or
      proceeding is improper. Each of the Company and the Purchaser consents to
      process being served in any such suit, action or proceeding by mailing a copy
      thereof to such party at the address in effect for notices to it under this
      Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing in this Section 7.2 shall affect
      or limit any right to serve process in any other manner permitted by
      law.

     

    Section
      7.3 Entire
      Agreement; Amendment.
      This
      Agreement and the Transaction Documents collectively contain the entire
      understanding and agreement of the parties with respect to the matters covered
      hereby and, except as specifically set forth herein or in the Transaction
      Documents, neither the Company nor the Purchaser makes any representations,
      warranty, covenant or undertaking with respect to such matters and they
      supersede all prior understandings and agreements with respect to said subject
      matter, all of which are merged herein. No provision of this Agreement may
      be
      waived or amended other than by a written instrument signed by the Company
      and
      the Purchaser (provided that the Purchaser holds Debenture and/or Preferred
      Shares at such time), and no provision hereof may be waived other than by an
      a
      written instrument signed by the party against whom enforcement of any such
      amendment or waiver is sought. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    Section
      7.4 Notices.
      Any
      notice, demand, request, waiver or other communication required or permitted
      to
      be given hereunder shall be in writing and shall be effective (a) upon hand
      delivery by telex (with correct answer back received), telecopy or facsimile
      at
      the address or number designated below (if delivered on a business day during
      normal business hours where such notice is to be received), or the first
      business day following such delivery (if delivered other than on a business
      day
      during normal business hours where such notice is to be received) or (b) on
      the
      second business day following the date of mailing by express courier service,
      fully prepaid, addressed to such address, or upon actual receipt of such
      mailing, whichever shall first occur. The addresses for such communications
      shall be

     

    
      	
              If
                to the Company:

            	 	
              China
                Bio Energy Holding Group Co., Ltd.

              c/oXi'an
                Baorun Industrial Development Co. Ltd.

              Dongxin
                Century Square,  7th Floor

              Xi'an
                East City High-tech Industrial Development Park

              Shannxi
                Province,  P.R. China

              Attn:
                Mr. Gao Xincheng

              Tel: 
                86 29 82682019

              Fax:
                86 29 82683629

            
	 	 	 
	
              with
                copies to (which shall not constitute notice):

            	 	
              Loeb
                & Loeb

              345
                Park Avenue

              New
                York, NY10154

              Attn:
                Mitchell S. Nussbaum

              Tel:
                212.407.4159

              Fax:
                212.407-4990

            
	 	 	 
	
              If
                to any Purchaser:

            	 	
              At
                the address of the Purchaser set forth on Exhibit
                A
                to
                this Agreement

            


    

     

    Any
      party
      hereto may from time to time change its address for notices by giving at least
      ten (10) days written notice of such changed address to the other party
      hereto.

     

    Section
      7.5 Waivers.
      No
      waiver by either party of any default with respect to any provision, condition
      or requirement of this Agreement shall be deemed to be a continuing waiver
      in
      the future or a waiver of any other provisions, condition or requirement hereof,
      nor shall any delay or omission of any party to exercise any right hereunder
      in
      any manner impair the exercise of any such right accruing to it
      thereafter.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    Section
      7.6 Headings.
      The
      article, section and subsection headings in this Agreement are for convenience
      only and shall not constitute a part of this Agreement for any other purpose
      and
      shall not be deemed to limit or affect any of the provisions
      hereof.

     

    Section
      7.7 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns.  

     

    Section
      7.8 No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person (other than the indemnified
      parties under Article VI).

     

    Section
      7.9 Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of New York, without giving effect to any of the conflicts
      of
      law principles which would result in the application of the substantive law
      of
      another jurisdiction. This Agreement shall not be interpreted or construed
      with
      any presumption against the party causing this Agreement to be
      drafted.

     

    Section
      7.10 Survival.
      The
      representations and warranties of the Company and the Purchaser shall survive
      the execution and delivery hereof and the Closings hereunder for a period of
      two
      years following the Closing Date.

     

    Section
      7.11 Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and all of which taken together
      shall
      constitute one and the same Agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other parties
      hereto, it being understood that all parties need not sign the same counterpart.
      In the event that any signature is delivered as a pdf document via email, such
      signature shall create a valid binding obligation of the party executing (or
      on
      whose behalf such signature is executed) the same with the same force and effect
      as if such pdf signature were the original thereof.

     

    Section
      7.12 Publicity.
      The
      Company agrees that it will not disclose, and will not include in any public
      announcement, the name of the Purchaser without the consent of the Purchaser
      unless and until such disclosure is required by law or applicable regulation,
      and then only to the extent of such requirement.

     

    Section
      7.13 Severability.
      The
      provisions of this Agreement and the Transaction Documents are severable and,
      in
      the event that any court of competent jurisdiction shall determine that any
      one
      or more of the provisions or part of the provisions contained in this Agreement
      or the Transaction Documents shall, for any reason, be held to be invalid,
      illegal or unenforceable in any respect, such invalidity, illegality or
      unenforceability shall not affect any other provision or part of a provision
      of
      this Agreement or the Transaction Documents and such provision shall be reformed
      and construed as if such invalid or illegal or unenforceable provision, or
      part
      of such provision, had never been contained herein, so that such provisions
      would be valid, legal and enforceable to the maximum extent
      possible.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    Section
      7.14 Further
      Assurances.
      From
      and after the date of this Agreement, upon the request of the Purchaser or
      the
      Company, each of the Company and the Purchaser shall execute and deliver such
      instrument, documents and other writings as may be reasonably necessary or
      desirable to confirm and carry out and to effectuate fully the intent and
      purposes of this Agreement, the Registration Rights Agreement and the other
      Transaction Documents.

    


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        32

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed by their respective authorized officer as of the date first above
      written.

    

      
        	 	
                CHINA
                  BIO ENERGY HOLDING GROUP CO., LTD.

              
	 	 
	 	 
	 	
                By:

              	
                 
                  /s/ Gao Xincheng

              
	 	 	
                Name: 
                  Mr.
                  Gao Xincheng

              
	 	 	
                Title:   
                  Chief
                  Executive Officer

              
	 	 	 
	 	 	 
	 	
                VISION
                  OPPORTUNITY CHINA LP

              
	 	 	 
	 	 	 
	 	
                By:

              	
                 
                  /s/ Adam Benowitz

              
	 	 	
                Name: 
                  Adam Benowitz

              
	 	 	
                Title:   
                  Authorized Signatory

              


      

    

     

    [Signature
      Page to Securities Purchase
      Agreement]

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A to the

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    
      	
              Name
                and Address

              of
                Purchaser and Purchaser’s Primer Broker

            	 	
              Number
                of Preferred Shares Purchased

            	 	
              Dollar Amount

              Of Investment

            	 
	
              Vision
                Opportunity China LP

              20
                West 55th Street

              5th
                Floor

              New
                York, NY 10019

              Attn:
                Kim Gabriel

              Tel:
                212-849-8242

              Fax:
                212-867-1416

              Email:
                k.gabriel@visicap.com

            	 	2,465,753
              Shares of Preferred Stock	 	
              $

            	
              9,000,000

            	 
	 	 	 	 	 	 	 
	
              Prime
                Broker:

              Jeffries
                Prime Brokerage

              Attn:
                Stephen D. Augustin

              Vision
                Opportunity China LP

              Account
                430-00211

              520
                Madison Ave., 12th Floor

              New
                York, NY 10022

            	 	 	 	 	 	 


    

    


    
      
        
        

      

      
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    EXHIBIT
      B to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    FORM
      OF CERTIFICATE OF DESIGNATION

    (see
      Tab No. 1)

    


    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    


    EXHIBIT
      C to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    FORM
      OF REGISTRATION RIGHTS AGREEMENT

    


    (See
      Tab No. 2)

    


    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    


    EXHIBIT
      D to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

     

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    CONVERSION
      NOTICE

     

    Reference
      is made to the Certificate of Designation of the Relative Rights and Preferences
      of the Series B Preferred Stock of CHINA
      BIO ENERGY HOLDING GROUP CO., LTD. .
      (the
“Certificate of Designation”). In accordance with and pursuant to the
      Certificate of Designation, the undersigned hereby elects to convert the number
      of shares of Series B Preferred Stock, par value $0.001
      per share (the “Preferred Shares”), of CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.,
      a
      Delaware corporation (the “Company”), indicated below into shares of Common
      Stock, par value $0.0001 per share (the “Common Stock”), of the Company, by
      tendering the stock certificate(s) representing the share(s) of Preferred Shares
      specified below as of the date specified below.

    

      
        	
                Date
                  of Conversion:

              	
                _____________________________________

              
	 	 
	
                Number
                  of Preferred Shares to be converted:

              	
                _____________

              
	 	 
	
                Stock
                  certificate no(s). of Preferred Shares to be
                  converted:      
                  ____________

              
	 	 
	
                The
                  Common Stock has been sold pursuant to the Registration Statement
                  (as
                  defined in the Registration Rights Agreement): YES
                  ____          NO____

              
	 	 
	
                Please
                  confirm the following information:

              	 
	 	 
	
                Conversion
                  Price:

              	
                _____________________________________

              
	 	 
	
                Number
                  of shares of Common Stock

              	 
	
                to
                  be issued:

              	
                _____________________________________

              
	
                 

              	 
	
                Number
                  of shares of Common Stock beneficially owned or deemed beneficially
                  owned
                  by the Holder on the Date of Conversion:
                  _________________________

              
	 	 
	
                Please
                  issue the Common Stock into which the Preferred Shares are being
                  converted
                  and, if applicable, any check drawn on an account of the Company
                  in the
                  following name and to the following address:

              
	 	 
	
                Issue
                  to:

              	
                _____________________________________

              
	 	
                _____________________________________

              
	 	 
	
                Facsimile
                  Number:

              	
                _____________________________________

              
	 	 
	
                Authorization:

              	
                _____________________________________

              
	 	
                By:
                  _________________________________

              
	 	
                Title:
                  _______________________________

              
	 	 
	
                Dated:

              	 


      

    

     

    
      
        
        

      

      
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    EXHIBIT
      E to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

     

    FORM
      OF SHARE ESCROW AGREEMENT

    (see
      Tab No. 3)

     

    
      
        
        

      

      
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    EXHIBIT
      F to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

     

    FORM
      OF MANAGEMENT ESCROW AGREEMENT

    (see
      Tab No.4)

     

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      G to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    FORM
      OF OPINION OF COUNSEL

     

    1. The
      Company is a corporation duly incorporated, validly existing and in good
      standing as such under the General Corporation Law of the State of Delaware.
      The
      Company has the requisite corporate power to own, lease and operate its
      properties and assets, and to carry on its business as to our knowledge it
      is
      presently conducting such business. 

    


    2. The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under the Transaction Documents and to issue the
      Debenture and, subject to filing the Amendment and the Certificate of
      Designation, issue the Series B Preferred Stock upon conversion of the
      Debenture, and the Common Stock issuable upon conversion of the Series B
      Preferred Stock. The execution, delivery and performance of each of the
      Transaction Documents by the Company and the consummation by it of the
      transactions contemplated thereby have been duly and validly authorized by
      all
      necessary corporate action and no further consent or authorization of the
      Company or its Board of Directors or stockholders is required, except for the
      filing and mailing of the Information Statement. Each of the Transaction
      Documents have been duly executed and delivered by the Company, and the
      Debenture has been duly executed, issued and delivered by the Company. Each
      of
      the Transaction Documents constitutes a valid and binding obligation of the
      Company enforceable against the Company in accordance with its respective terms.
      Neither the Series B Preferred Stock issuable upon conversion of the Debenture
      when authorized will be, nor the Company’s Common Stock issuable upon conversion
      of the Series B Preferred Stock is, subject to any preemptive rights under
      the
      Company’s Certificate of Incorporation, as amended, or the Company’s
      By-Laws.

    


    3. Upon
      filing the Amendment and the Certificate of Designation, the shares of Series
      B
      Preferred Stock issuable upon conversion of the Debenture will be duly
      authorized and reserved for issuance, and, when delivered upon conversion of
      the
      Debenture, as provided in the Debenture, will be validly issued, fully paid
      and
      nonassessable. The shares of Common Stock issuable upon conversion of the
      Preferred Stock have been duly authorized and reserved for issuance, and, when
      delivered upon conversion of the Series B Preferred Stock, as provided in the
      Certificate of Designation, will be validly issued, fully paid and
      nonassessable.

    


    4. The
      Company’s execution, delivery and performance of, and compliance with the terms
      of, the Transaction Documents and the issuance of the Debenture does not, the
      Preferred Stock issuable upon conversion of the Debenture and the Common Stock
      issuable upon conversion of the Preferred Stock will not, as the case may be
      (i)
      violate any provision of the Company’s Certificate of Incorporation, as amended,
      or By-Laws, or (ii) result in a material violation of any federal or state
      statute, rule or regulation known to us to be customarily applicable to
      transactions of the nature contemplated by the Transaction Documents, or (iii)
      conflict with or violate any order, judgment, injunction or decree known to
      us
      to be applicable to the Company, except, with respect to clauses (i) and (iii)
      above, for such violations or conflicts as would not, individually or in the
      aggregate, have a Material Adverse Effect.

     

    
      
        
        

      

      
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    5. To
      our
      knowledge, there is no action, suit, claim, investigation or proceeding pending
      or threatened against the Company which questions the validity of the Purchase
      Agreement or the transactions contemplated thereby or any action taken or to
      be
      taken pursuant thereto. To our knowledge, there is no action, suit, claim,
      investigation or proceeding pending or threatened against or involving the
      Company or any of its properties or assets and which, if adversely determined,
      is reasonably likely to result in a Material Adverse Effect. To our knowledge,
      there are no outstanding orders, judgments, injunctions, awards or decrees
      of
      any court, arbitrator or governmental or regulatory body against the
      Company.

    


    6. Based
      upon, and assuming the truth of, the representations and warranties and full
      performance of the covenants, of the Purchaser in the Purchase Agreement, the
      offer, issuance and sale of the Debenture are, and the issuance of the (a)
      shares of Preferred Stock issuable upon conversion of the Debenture and (b)
      shares of Common Stock issuable upon conversion of the Preferred Stock will
      be
      exempt from the registration requirements of Section 5 of the Securities
      Act.

    


    Very
      truly yours,

    


    
      
        
        

      

      
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    EXHIBIT
      H to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    FORM
      OF DEBENTURE

    


    
      
        
        

      

      
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    EXHIBIT
      I to the 

    SECURITIES
      PURCHASE AGREEMENT FOR 

    CHINA
      BIO ENERGY HOLDING GROUP CO., LTD.

    


    FORM
      OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

     

    as
      of
      ____________, 2008                        

     

    [Name
      of
      Transfer Agent]

    [Address]

    Telephone:
      (

    Facsimile:
      

    Attn:
      

     

    Ladies
      and Gentlemen:

     

    Reference
      is made to that certain Securities Purchase Agreement (the “Purchase
      Agreement”), dated as of October __, 2008, between China Bio Energy Holding
      Group Co., Ltd., a Delaware corporation (the “Company”), and the purchaser named
      therein (the “Purchaser”) pursuant to which the Company is issuing to the
      Purchaser a debenture convertible into shares of its Series B Convertible
      Preferred Stock, par value $0.001 per share (the “Preferred Shares”), which
      shall be convertible into shares of the Company’s common stock, par value
      $0.0001 per share (the “Common Stock”). This letter shall serve as our
      irrevocable authorization and direction to you (provided that you are the
      transfer agent of the Company at such time) to issue Preferred Shares upon
      the
      automatic conversion under the Debenture and shares of Common Stock upon
      conversion of the Preferred Shares (the “Common Conversion Shares”) to or upon
      the order of the Purchaser from time to time upon (i) surrender to you of a
      properly completed and duly executed Conversion Notice, as the case may be,
      in
      the form attached hereto as Exhibit I, (ii) in the case of the conversion of
      Preferred Shares, a copy of the certificates (with the original certificates
      delivered to the Company) representing Preferred Shares being converted (or,
      in
      each case, an indemnification undertaking with respect to such share
      certificates in the case of their loss, theft or destruction), and (iii)
      delivery of a treasury order or other appropriate order duly executed by a
      duly
      authorized officer of the Company. So long as you have previously received
      (x)
      written confirmation from counsel to the Company that a registration statement
      covering resales of the Common Conversion Shares has been declared effective
      by
      the Securities and Exchange Commission (the “SEC”) under the Securities Act of
      1933, as amended (the “1933 Act”), and no subsequent notice by the Company or
      its counsel of the suspension or termination of its effectiveness and (y) a
      copy
      of such registration statement, and if the Purchaser represents in writing
      that
      the Common Conversion Shares were sold pursuant to the Registration Statement,
      then certificates representing the Conversion Share shall not bear any legend
      restricting transfer of the Conversion Shares thereby and should not be subject
      to any stop-transfer restriction. Provided, however, that if you have not
      previously received those items and representations listed above, then the
      certificates for the Preferred Shares and the Common Conversion Shares shall
      bear the following legend:

     

    
      
        
        

      

      
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    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
      SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
      REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
      XI’AN BAORUN INDUSTRIAL DEVELOPMENT CO., LTD. SHALL HAVE RECEIVED AN OPINION OF
      ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
      UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
      REQUIRED.”

     

    and,
      provided further, that the Company may from time to time notify you to place
      stop-transfer restrictions on the certificates for the Common Conversion Shares
      in the event a registration statement covering the Common Conversion Shares
      is
      subject to amendment for events then current.

     

    A
      form of
      written confirmation from counsel to the Company that a registration statement
      covering resales of the Common Conversion Shares has been declared effective
      by
      the SEC under the 1933 Act is attached hereto as Exhibit II.

     

    Please
      be
      advised that the Purchasers are relying upon this letter as an inducement to
      enter into the Purchase Agreement and, accordingly, each Purchaser is a third
      party beneficiary to these instructions.

     

    Please
      execute this letter in the space indicated to acknowledge your agreement to
      act
      in accordance with these instructions. Should you have any questions concerning
      this matter, please contact me at ___________.

    

      
        	 	
                Very
                  truly yours,

              
	 
	
                CHINA
                  BIO ENERGY HOLDING GROUP CO., LTD.

              
	 	 
	 	 
	 	
                By: _________________________________

              
	 	
                Name: _______________________________

              
	 	
                Title: ________________________________

              
	 	 
	
                ACKNOWLEDGED
                  AND AGREED:

              	 
	 	 
	
                [TRANSFER
                  AGENT]

              	 
	 	 
	
                By:

              	
                ______________________________________

              	 
	
                Name:

              	
                ______________________________________

              	 
	
                Title:

              	
                ______________________________________

              	 
	
                Date:

              	
                __________________

              	 


      

    

     

    
      
        
        

      

      
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