ltus_ex101.htm


    EXHIBIT 10.1

     

     

    STANDBY EQUITY DISTRIBUTION
AGREEMENT

     

    THIS AGREEMENT dated as of the
3rd  day of March 2010 (this “Agreement”) between
YA GLOBAL MASTER SPV
LTD., a Cayman Islands exempt limited partnership (the “Investor”), and LOTUS PHARMACEUTICALS INC., a
corporation organized and existing under the laws of the State of Nevada (the
“Company”).

     

    WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to $10,000,000 of the Company’s
common stock, par value $0.001 per share (the “Common Stock”);
and

     

    WHEREAS, such investments will
be made in reliance upon the provisions of Regulation D (“Regulation D”) of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the “Securities Act”), and
or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the
transactions to be made hereunder.

     

    NOW, THEREFORE, the parties hereto
agree as follows:

     

    Article
I.Certain
Definitions

     

    Section
1.01 “Additional Shares”
shall mean the number of shares of Common Stock sold by the Investor during all
Excluded Days during a single Pricing Period applicable to an Advance
Notice.

     

    Section
1.02 “Advance” shall mean
the portion of the Commitment Amount requested by the Company in the Advance
Notice.

     

    Section
1.03 “Advance Notice” shall
mean a written notice in the form of Exhibit A attached
hereto to the Investor executed by an officer of the Company and setting forth
the amount of the Advance that the Company requests from the
Investor.

     

    Section
1.04 “Advance Notice Date”
shall mean each date the Company delivers (in accordance with Section 2.01(b) of
this Agreement) to the Investor an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this
Agreement.

     

    Section
1.05 “Affiliate” shall have
the meaning set forth in Section 3.08.

     

    Section
1.06 “By-laws” shall have
the meaning set forth in Section 4.03.

     

    Section
1.07 “Certificate of
Incorporation” shall have the meaning set forth in Section
4.03.

     

    Section
1.08 “Commitment Amount”
shall mean the aggregate amount of up to $10,000,000 which the Investor has
agreed to provide for the purchase of the Company’s Common Stock pursuant to the
terms and conditions of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
1.09 “Commitment Fee” shall
have the meaning set forth in Section 12.04(a).

     

    Section
1.10 “Commitment Period”
shall mean the period commencing on the Effective Date, and ending upon the
termination of this Agreement in accordance with Section 10.02 (a).

     

    Section
1.11 “Commission” shall
mean an amount equal to 2.75% of the Advance (reduced if necessary, pursuant to
Section 2.01(c), Section 2.01(d) or Section 2.01(e), which the Company shall pay
to Yorkville Advisors HK Limited.

     

    Section
1.12 “Common Stock” shall
have the meaning set forth in the recitals of this Agreement.

     

    Section
1.13 “Company Indemnitees”
shall have the meaning set forth in Section 5.02.

     

    Section
1.14 “Condition Satisfaction
Date” shall have the meaning set forth in Section 7.01.

     

    Section
1.15 “Consolidation Event”
shall have the meaning set forth in Section 6.07.

     

    Section
1.16 “Daily Value Traded”
of the Common Stock, with respect to any day, means the product obtained by
multiplying the daily trading volume of the Common Stock on the Principal Market
for such day by the VWAP for such day.

     

    Section
1.17 “Damages” shall mean
any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).

     

    Section
1.18 “Due Diligence
Documents” shall mean the books and records of the Company and the other
information reasonably required for the Investor to make an investment decision
regarding the transactions contemplated by this Agreement.

     

    Section
1.19 “Effective Date” shall
mean the date on which the SEC first declares effective a Registration Statement
registering the resale of the Shares.

     

    Section
1.20 “Environmental Laws”
shall have the meaning set forth in Section 4.11.

     

    Section
1.21 “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     

    Section
1.22 “Indemnified
Liabilities” shall have the meaning set forth in Section
5.01.

     

    Section
1.23 “Inspectors” shall
have the meaning set forth in Section 6.16.

     

    Section
1.24 “Investor Indemnitees”
shall have the meaning set forth in Section 5.01.

     

    Section
1.25 “Investor’s Commitment
Shares” shall have the meaning set forth in Section
12.04(a).

     

    Section
1.26 “Market Price” shall
mean the lowest daily VWAP of the Common Stock during the relevant Pricing
Period that is greater than or equal to the Minimum Market Price.

     

    
      
        
        

      

      
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    Section
1.27 “Material Adverse
Effect” shall mean any condition, circumstance, or situation that may
result in, or reasonably be expected to result in, (i) a material adverse effect
on the legality, validity or enforceability of this Agreement or the
transactions contemplated herein, (ii) a material adverse effect on the results
of operations, assets, business, condition or prospects (financial or otherwise)
of the Company and its subsidiaries, individually or taken as a whole, or (iii)
a material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under this Agreement.

     

    Section
1.28 “Maximum Advance
Amount” shall be $200,000; provided, however, that with
respect to all Advances other than the first Advance, if the Relevant Percentage
is greater than or equal to 10%, the Maximum Advance Amount shall equal the
product obtained by multiplying $200,000 by the sum of 100% plus the Relevant
Percentage; provided, further
that the Maximum Advance Amount may never exceed $500,000.  For
the avoidance of doubt, if the Relevant Percentage is less than 10%, there will
be no adjustment to the Maximum Advance Amount.

     

    Section
1.29 “Minimum Acceptable
Price” shall mean $0.87 per share, below which the Company does not wish
to sell shares of Common Stock pursuant to an Advance.

     

    Section
1.30  “Minimum Market Price”
shall mean the product obtained by multiplying the Minimum Acceptable Price by
1.07527.

     

    Section
1.31 “Net Advance Amount”
shall mean the amount of an Advance (in each case as reduced, if necessary,
pursuant to Section 2.01(c), Section 2.01(d) or Section 2.01(e) less the
Commission.

     

    Section
1.32 “Ownership Limitation”
shall have the meaning set forth in Section 2.01(a).

     

    Section
1.33 “Person” shall mean an
individual, a corporation, a partnership, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.

     

    Section
1.34 “Plan of Distribution”
shall have the meaning set forth in Section 6.01(a).

     

    Section
1.35 “Pricing Period” shall
mean the 5 consecutive Trading Days after the Advance Notice Date, subject to
any adjustment for Excluded Days pursuant to Section 2.01(c).

     

    Section
1.36 “Principal Market”
shall mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq
Capital Market, the OTC Bulletin Board, the NYSE Euronext or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

     

    Section
1.37 “Purchase Price” shall
mean the price per share equal to the higher of (i) 93% of the Market Price
during the Pricing Period or (ii) the Minimum Acceptable Price.

     

    Section
1.38  “Records” shall have
the meaning set forth in Section 6.16.

     

    
      
        
        

      

      
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    Section
1.39 “Registrable
Securities” shall mean (i) the Shares, (ii) the Investor’s
Commitment Shares and
(iii) any securities issued or issuable with respect to any of the foregoing by
way of exchange, stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.  As to any particular Registrable
Securities, once issued, such Registrable Securities shall cease to be
Registrable Securities when (a) the Registration Statement for such Registrable
Securities has been declared effective by the SEC and such Registrable
Securities have been disposed of pursuant to such Registration Statement, (b)
such Registrable Securities have been sold under circumstances under which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act (“Rule 144”) are met,
or (c) in the opinion of counsel to the Investor, such Registrable Securities
may permanently be sold without registration or without any time, volume or
manner limitations pursuant to Rule 144.

     

    Section
1.40 “Registration Period”
shall have the meaning set forth in Section 6.01(b).

     

    Section
1.41 “Registration
Statement” shall mean a registration statement on Form S-1 or Form S-3 or
on such other form promulgated by the SEC for which the Company then qualifies
and which counsel for the Company shall deem appropriate, and which form shall
be available for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.

     

    Section
1.42 “Regulation D” shall
have the meaning set forth in the recitals of this Agreement.

     

    Section
1.43 “Relevant Percentage”
shall mean for each Advance other than the first Advance, the percent, if any,
by which the arithmetic average of the Daily Value Traded for the 5 Trading Days
prior to the Advance Notice Date for such Advance is greater than the Advance
immediately prior to such Advance; provided, however, that the
prior Advance was equal to or greater than $200,000.  For the
avoidance of doubt, if the Advance immediately prior to such Advance was less
than $200,000, the Relevant Percentage will be deemed to be 0.

     

    Section
1.44 “SEC” shall mean the
Securities and Exchange Commission.

     

    Section
1.45 “SEC Documents” shall
have the meaning set forth in Section 4.05.

     

    Section
1.46 “Securities Act” shall
have the meaning set forth in the recitals of this Agreement.

     

    Section
1.47 “Settlement Document”
shall have the meaning set forth in Section 2.02(a).

     

    Section
1.48 “Share Issuance Date”
shall mean the second (2) Trading Day after receipt by the Company of the
Settlement Document with respect to each Advance.

     

    Section
1.49 “Shares” shall mean
the shares of Common Stock to be issued from time to time hereunder pursuant to
Advances.

     

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

     

    Section
1.51 “VWAP” shall mean, for
any date, the daily volume weighted average price of the Common Stock for such
date on the Principal Market as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (Eastern Standard Time) to 4:00 p.m. (Eastern Standard
Time)).

     

    
      
        
        

      

      
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    Article
II.Advances

     

    Section
2.01 Advances; Mechanics.
Subject to the terms and conditions of this Agreement (including, without
limitation, the provisions of Article VII hereof), the Company, at its sole and
exclusive option, may issue and sell to the Investor, and the Investor shall,
upon exercise by the Company of its option, purchase from the Company, Shares on
the following terms:

     

    
      	
              (a)  

            	
              Advance
      Notice.  At any time during the Commitment Period, the
      Company may require the Investor to purchase shares of Common Stock by
      delivering an Advance Notice to the Investor, subject to the conditions
      set forth in Article VII; provided, however, that (i) the amount for each
      Advance as designated by the Company in the applicable Advance Notice
      shall not be more than the Maximum Advance Amount, (ii) the aggregate
      amount of the Advances pursuant to this Agreement shall not exceed the
      Commitment Amount, and (iii) in no event shall the number of Shares
      issuable to the Investor pursuant to an Advance cause the aggregate number
      of shares of Common Stock beneficially owned (as calculated pursuant to
      Section 13D of the Exchange Act) by the Investor and its affiliates to
      exceed 4.99% of the then outstanding Common Stock or such other amount
      that would result in the Investor being required to file a Schedule 13D
      under the Exchange Act (the “Ownership
      Limitation”).  Notwithstanding any other provision in
      this Agreement, the Company acknowledges and agrees that upon receipt of
      an Advance Notice, the Investor may sell the Shares that it is obligated
      to purchase under such Advance Notice prior to taking possession of such
      Shares.

            


    

     

    
      	
              (b)  

            	
              Date of Delivery of
      Advance Notice.  Advance Notices shall be delivered in
      accordance with the instructions set forth on the bottom of Exhibit A or
      such other instructions that the Investor may provide to the
      Company.  An Advance Notice shall be deemed delivered on (i) the
      Trading Day it is received by email, facsimile or otherwise by the
      Investor if such notice is received prior to 5:00 pm New York City time,
      or (ii) the immediately succeeding Trading Day if it is received by email,
      facsimile or otherwise after 5:00 pm New York City time on a Trading Day
      or at any time on a day which is not a Trading Day.  No Advance
      Notice may be deemed delivered on a day that is not a Trading
      Day.  The Company acknowledges and agrees that the Investor
      shall be entitled to treat any email it receives from officers whose email
      addresses are identified by the Company purporting to be an Advance Notice
      as a duly executed and authorized Advance Notice from the
      Company.  The Investor shall promptly confirm the receipt of any
      Advance Notice delivered via email after such email is opened by replying
      to the sender of such email.  Any Advance Notice delivered by
      email shall be deemed received by the Investor only after the Investor has
      sent such email reply confirming
receipt.

            


    

     

    
      	
              (c)  

            	
              Minimum Acceptable
      Price. Upon the issuance by the Company of an Advance Notice
      with a Minimum Acceptable Price (i) the amount of the Advance set forth in
      such Advance Notice shall, automatically be reduced by twenty percent
      (20%) for each Trading Day during the Pricing Period that the VWAP is
      below the Minimum Market Price (each such day, an “Excluded Day”),
      and (ii) each Excluded Day shall be excluded from the Pricing Period for
      purposes of determining the Market Price.  The Company shall be
      obligated to sell, and the Investor shall be obligated to purchase
      Additional Shares at a price equal to the Minimum Acceptable Price set
      forth in the applicable Advance
Notice.

            


    

     

    
      
        
        

      

      
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              (d)  

            	
              Ownership
      Limitation.  In connection with each Advance Notice
      delivered by the Company, any portion of an Advance that the Investor
      reasonably believes would cause the Ownership Limitation to be exceeded
      shall automatically be disregarded.

            


    

     

    
      	
              (e)  

            	
              Registration
      Limitation.  In connection with each Advance Notice, any
      portion of an Advance that would cause the aggregate number of Shares held
      by Investor upon issuance of such Shares to exceed the aggregate number of
      shares of Common Stock available for resale under an effective
      Registration Statement shall automatically be disregarded and the Advance
      Notice shall be deemed to be amended accordingly with no further action
      required from the Company.  At the Company’s request from time
      to time, the Investor shall report to the Company the total amount of
      Shares offered and sold pursuant to this Agreement and the portion of the
      total Commitment Amount remaining.

            


    

     

    Section
2.02 Closings.  The
closing of each Advance shall take place on each Share Issuance Date in
accordance with the following procedures:

     

    
      	
              (a)  

            	
              Within
      1 Trading Day after the end of the applicable Pricing Period, the Investor
      shall deliver to the Company a written document (each a “Settlement
      Document”) setting forth (i) the amount of the Advance (taking into
      account any adjustments pursuant to Section 2.01(c), Section 2.01(d) or
      Section 2.01(e), (ii) the Net Advance Amount, (iii) the Minimum Acceptable
      Price (if any) for the Advance, (iv) the number of Excluded Days (if any)
      taken into account in determining the Pricing Period, (v) the Purchase
      Price for the Shares, (vi) the Market Price for the Advance (as supported
      by a report by Bloomberg, LP indicating the VWAP for each of the Trading
      Days during the Pricing Period), (vii) the number of Additional Shares, if
      any, to be purchased and (viii) the amount payable to the Company, in each
      case, taking into account the terms and conditions of this
      Agreement.  The Settlement Document shall be substantially in
      the form attached hereto as Exhibit B and
      shall be delivered in accordance with the instructions set forth on the
      top of Exhibit B or such other instructions that the Company may provide
      to the Investor in writing.

            


    

     

    
      	
              (b)  

            	
              Upon
      receipt of the Settlement Document with respect to each Advance, the
      Company shall, by signing the Settlement Document and returning it to the
      Investor, confirm that it has obtained all permits and qualifications
      required for the issuance and transfer of the shares of Common Stock
      applicable to such Advance, or shall have the availability of exemptions
      therefrom and that the sale and issuance of such shares of Common Stock
      shall be legally permitted by all laws and regulations to which the
      Company is subject.

            


    

     

    
      	
              (c)  

            	
              On
      each Share Issuance Date the Company will, or will cause its transfer
      agent to, electronically transfer or deliver a stock certificate without
      any restrictive legend for such number of shares of Common Stock
      registered in the name of the Investor as shall equal (x) the amount of
      the Advance specified in such Advance Notice (as may be reduced according
      to the terms of this Agreement), divided by the Purchase Price against
      payment of the aggregate Purchase Price (less the Commission as set forth
      below), in same day funds to an account designated by the Company and (y)
      the Additional Shares, if any, against payment of the Minimum Acceptable
      Price, in each case, by crediting the Investor’s account or its designee’s
      account at the Depository Trust Company through its Deposit Withdrawal
      Agent Commission System or by such other means of delivery as may be
      mutually agreed upon by the parties hereto (which in all cases shall be
      freely tradable, registered shares in good deliverable
      form).  No fractional shares shall be issued, and any fractional
      amounts shall be rounded to the next higher whole number of
      shares.  Any certificates evidencing shares of Common Stock
      delivered pursuant hereto shall be free of restrictive
      legends.

            


    

     

    
      
        
        

      

      
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              (d)  

            	
              On
      each Share Issuance Date, upon receipt of the Shares related to such
      Advance, the Investor will pay the Commission to Yorkville Advisors HK
      Limited in same day funds to an account designated by Yorkville Advisors
      HK Limited.

            


    

     

    Section
2.03 Hardship.  If
the Company defaults in its obligations to deliver the Shares (which in all
cases shall be freely tradable, registered shares in good deliverable form) on
the Share Issuance Date, the Company agrees that in addition to and in no way
limiting the rights and obligations set forth in Article V hereto and in
addition to any other remedy to which the Investor may be entitled at law or in
equity, including, without limitation, specific performance, it will hold the
Investor harmless against any Damages arising out of or in connection with such
default by the Company and acknowledges that irreparable damage would occur in
the event of any such default.  It is accordingly agreed that Investor
shall be entitled to an injunction or injunctions to prevent such breaches of
this Agreement and to specifically enforce, without the posting of a bond or
other security, the terms and provisions of this Agreement.

     

    Article
III.Representations and
Warranties of Investor

     

    Investor
hereby represents and warrants to, and agrees with, the Company that the
following are true and correct as of the date hereof:

     

    Section
3.01 Organization and
Authorization.  The Investor is duly organized, validly
existing and in good standing under the laws of the Cayman Islands and has all
requisite power and authority to purchase and hold the Shares.  The
decision to invest and the execution and delivery of this Agreement by such
Investor, the performance by such Investor of its obligations hereunder and the
consummation by such Investor of the transactions contemplated hereby have been
duly authorized and requires no other proceedings on the part of the
Investor.  The undersigned has the right, power and authority to
execute and deliver this Agreement and all other instruments on behalf of the
Investor.  This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors’
rights and remedies.

     

    Section
3.02 Evaluation of
Risks.  The Investor has such knowledge and experience in
financial, tax and business matters as to be capable of evaluating the merits
and risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this
transaction.  It recognizes that its investment in the Company
involves a high degree of risk.

     

    
      
        
        

      

      
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    Section
3.03 No Legal Advice From the
Company.  The Investor acknowledges that it has had the
opportunity to review this Agreement and the transactions contemplated by this
Agreement with its own legal counsel and investment and tax advisors. The
Investor is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of the Company’s
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.

     

    Section
3.04 Investment Purpose.
The securities are being purchased by the Investor for its own account, and for
investment purposes.  The Investor agrees not to assign or in any way
transfer the Investor’s rights to the securities or any interest therein and
acknowledges that the Company will not recognize any purported assignment or
transfer except in accordance with applicable Federal and state securities laws.
No other person has or will have a direct or indirect beneficial interest in the
securities. The Investor agrees not to sell, hypothecate or otherwise transfer
the Investor’s securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is
available.

     

    Section
3.05 Information.  The
Investor and its advisors (and its counsel), have been furnished with all
materials relating to the business, finances and operations of the Company and
information it deemed material to making an informed investment
decision.  The Investor and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and its
management.  Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor’s right to rely on
the Company’s representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree of
risk.

     

    Section
3.06 Accredited
Investor.  The Investor is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities
Act.

     

    Section
3.07 No General
Solicitation.  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 the shares of Common
Stock offered hereby.

     

    Section
3.08 Not an
Affiliate.  The Investor is not an officer, director or a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with the Company or any “Affiliate” of the
Company (as that term is defined in Rule 405 of the Securities
Act).

     

    
      
        
        

      

      
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    Section 3.09 Trading Activities.  The
Investor’s trading activities with respect to the Company’s Common Stock shall
be in compliance with all applicable federal and state securities laws, rules
and regulations and the rules and regulations of the Principal Market on which
the Common Stock is listed or traded.  Neither the Investor nor its
affiliates has an open short position in the Common Stock, the Investor agrees
that it shall not, and that it will cause its affiliates not to, engage in any
short sales of the Common Stock provided that the Company acknowledges and
agrees that upon receipt of an Advance Notice the Investor has the right to sell
the shares to be purchased by the Investor pursuant to the Advance Notice prior
to taking possession of such Shares.

     

    Section 3.10 Receipt of
Documents.  The Investor and its counsel has received and read:
(i) this Agreement and the Exhibits annexed hereto; (ii) Due Diligence
Documents; and (iii) answers to all questions the Investor submitted to the
Company in writing regarding an investment in the Company; and the Investor has
relied on the such answers and Due Diligence Documents and has not been
furnished any other documents, literature, memorandum or
prospectus.

     

    Section
3.11 Acknowledgment Regarding
Investor’s Purchase of Shares. The Investor acknowledges and agrees that
the Investor is acting solely in the capacity of an arm’s length investor with
respect to this Agreement and the transactions contemplated
hereunder.

     

    Article
IV.Representations and Warranties
of the Company

     

    Except as
stated below, on the disclosure schedules attached hereto or in the SEC
Documents, the Company hereby represents and warrants to, the Investor that the
following are true and correct as of the date hereof and shall be true and
correct as of each Share Issuance Date:

     

    Section
4.01 Organization and
Qualification.  The Company is duly incorporated, validly
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power to own its properties and to carry on its business as
now being conducted.  Each of the Company and 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 by it makes
such qualification necessary.

     

    Section
4.02 Authorization, Enforcement,
Compliance with Other Instruments.  (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and any related agreements, in accordance with the terms hereof and thereof,
(ii) the execution and delivery of this Agreement and any related agreements by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by the Company’s Board of Directors, a
copy of the resolutions or consent authorizing the transactions contemplated
hereby have been provided to the Investor and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement and any related agreements have been duly
executed and delivered by the Company, (iv) this Agreement and assuming the
execution and delivery thereof and acceptance by the Investor, any related
agreements, constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

     

    
      
        
        

      

      
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    Section
4.03 Capitalization.  The
authorized capital stock of the Company consists of 200,000,000 shares of Common
Stock $0.001 par value per share of which 50,465,100 shares of Common Stock are
issued and outstanding and 10,000,000 shares of Preferred Stock, $.001 per share
(“Preferred
Stock”) of which 2,478,304 shares of Preferred Stock are issued and
outstanding.  All of such outstanding shares have been validly issued
and are fully paid and nonassessable.  No shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company.  Except as
disclosed in Schedule 4.03, there are no (i) outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) outstanding debt securities (iii)
outstanding registration statements other than on Form S-8 and Registration
Statements and (iv) agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of its securities
under the Securities Act (except pursuant to this Agreement).  There
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the execution or performance of any of the obligations
under this Agreement or any related agreement or the consummation of the
transactions described herein or therein.  The Company has furnished
or made available to the Investor true and correct copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate of
Incorporation”), and the Company’s by-laws, as in effect on the date
hereof (the “By-laws”), and
agreements relating to any obligation of the Company to issue securities
convertible into or exercisable for Common Stock.

     

    Section
4.04 No
Conflict.  The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
Preferred Stock of the Company or By-laws 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 to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or its subsidiaries is bound.  None of the Company or its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries.  The
business of the Company and its subsidiaries is not being conducted in violation
of any law, ordinance or regulation of any governmental
entity.  Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company 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 or
contemplated by this Agreement in accordance with the terms hereof or thereof
except as such consent, authorization or order has been obtained prior to the
date hereof.  The Company and its subsidiaries are unaware of any fact
or circumstance which might give rise to any of the foregoing.

     

    
      
        
        

      

      
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    Section
4.05 SEC Documents; Financial
Statements.  The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
under the Exchange Act for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (all of the foregoing filed within the two years preceding the date
hereof or amended after the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the “SEC Documents”) on
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Document prior to the expiration of any such
extension.  The Company has delivered to the Investors or their
representatives, or made available through the SEC’s website at
http://www.sec.gov, true and complete copies of the SEC Documents.  As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  As of their respective dates, the consolidated
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, 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 exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company on a
consolidated basis as of the dates thereof and the results of its consolidated
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstance under
which they are made, not misleading.

     

    Section
4.06 Due Diligence
Documents.  The Due Diligence Documents contain all material
information about the Company, and do not contain any untrue statement of a
material fact or omit any material facts which are necessary for the Investor to
make an investment decision regarding the transactions contemplated by this
Agreement.

     

    
      
        
        

      

      
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    Section
4.07 No
Default.  Except as disclosed in the SEC Documents, none of the
Company or its subsidiaries is in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it or its subsidiaries is a party or by which it or its subsidiaries is or
its or their property is bound and neither the execution, nor the delivery by
the Company, nor the performance by the Company of its obligations under this
Agreement or any of the exhibits or attachments hereto will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company or its subsidiaries under its
Certificate of Incorporation, By-Laws, or their organizational by-laws,
respectively, or any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or its subsidiaries or instrument
to which the Company or its subsidiaries is a party or by which it is bound, or
any statute, or any decree, judgment, order, rules or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
subsidiaries or its or their properties, in each case which default, lien or
charge may have a Material Adverse Effect.

     

    Section
4.08 Absence of Events of
Default.  Except for matters described in the SEC Documents or
this Agreement, no event of default or similar circumstances, as defined or
described in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an event of default or similar circumstances, has occurred and is
continuing, which would have a Material Adverse Effect.

     

    Section
4.09 Intellectual Property
Rights.  The Company and its subsidiaries own or possess
adequate rights or licenses to use all material trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted.  The Company and its subsidiaries do not have any knowledge
of any infringement by the Company or its subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, and, to the knowledge of the Company, there is no claim, action or
proceeding being made or brought against, or to the Company’s knowledge, being
threatened against the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company is and its subsidiaries are not aware of any facts or
circumstances which might give rise to any of the foregoing.

     

    Section
4.10 Employee
Relations.  Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened.  None of the Company’s
or its subsidiaries’ employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are
good.

     

    Section
4.11 Environmental
Laws.  The Company and its subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”),
(ii) have received all permits, licenses or other approvals required under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval.

     

    
      
        
        

      

      
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    Section
4.12 Title.  Except
as set forth in the SEC Documents, the Company has good and marketable title to
the properties and assets purported to be owned by it (including all of the
properties and assets reflected in the financial statements), free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest
other than such as are not material to the business of the
Company.  Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.

     

    Section
4.13 Insurance.  The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its subsidiaries are engaged.  Neither the
Company nor any such subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

     

    Section
4.14 Regulatory
Permits.  The Company and each of its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings or threatened proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

     

    Section
4.15 Internal Accounting
Controls.  The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles 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.

     

    Section
4.16 No Breaches,
etc.  Except as set forth in the SEC Documents, none of the
Company or any of its subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Company’s officers has or may in the future have a Material
Adverse Effect.  Except as set forth in the SEC Documents, none of the
Company or any of its subsidiaries is in breach of any contract or agreement
which breach, in the judgment of the Company’s officers, has or may have a
Material Adverse Effect.

     

    
      
        
        

      

      
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    Section
4.17 Absence of
Litigation.  Except as set forth in the SEC Documents, there is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries. Any litigation, even if not disclosed in the SEC filings, shall
only be deemed to be material if an unfavorable decision, ruling or finding
would have a Material Adverse Effect on the Company and its subsidiaries taken
as a whole.

     

    Section
4.18 Subsidiaries.  Except
as disclosed in the SEC Documents, the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.

     

    Section
4.19 Tax
Status.  Except as disclosed in the SEC Documents, the Company
and each of its subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

     

    Section
4.20 Certain
Transactions.  Except as set forth in the SEC Documents none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

     

    Section
4.21 Rights of First
Refusal.  The Company is not obligated to offer the securities
offered hereunder on a right of first refusal basis or otherwise to any third
party including, but not limited to, current or former shareholders of the
Company, underwriters, brokers, agents or other third parties.

     

    Section
4.22 Use of
Proceeds.  The Company shall use the net proceeds from this
offering for working capital and other general corporate purposes.

     

    Section
4.23 Dilution.  The
Company is aware and acknowledges that issuance of shares of the Common Stock
could cause dilution to existing shareholders and could significantly increase
the outstanding number of shares of Common Stock.

     

    
      
        
        

      

      
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    Section
4.24 Acknowledgment Regarding
Investor’s Purchase of Shares. The Company acknowledges and agrees that
the Investor is acting solely in the capacity of an arm’s length investor with
respect to this Agreement and the transactions contemplated hereunder. The
Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or any related agreement and the transactions contemplated
hereunder and any advice given by the Investor or any of its representatives or
agents in connection with this Agreement or any related agreement and the
transactions contemplated hereunder is merely incidental to the Investor’s
purchase of the Shares hereunder.  The Company is aware and
acknowledges that it may not be able to request Advances under this Agreement if
the Registration Statement is not declared effective or if any issuances of
Common Stock pursuant to any Advances would violate any rules of the Principal
Market.  The Company further is aware and acknowledges that any fees
paid or shares issued pursuant to Section 12.04 hereunder shall be earned by the
Investor on and as of the date hereof and not refundable or returnable to the
Company under any circumstances.

     

    Article
V.  Indemnification

     

    Section
5.01 Indemnification by the
Company.  In consideration of the Investor’s execution and
delivery of this Agreement, and in addition to all of the Company’s other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless the Investor, and all of its officers, directors, partners,
employees, advisors and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) and each person
who controls the Investor within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively, the “Investor
Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, damages and liabilities joint or
several, and expenses in connection therewith (irrespective of whether any such
Investor Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified
Liabilities”), incurred by the Investor Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any untrue statement or alleged
untrue statement of a material fact contained in a Registration Statement as
originally filed or in any amendment thereof, or in any related prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Investor specifically for inclusion therein;
(b) any misrepresentation or breach of any representation or warranty made by
the Company in this Agreement or any other certificate, instrument or document
contemplated hereby or thereby; (c) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or any other certificate,
instrument or document contemplated hereby or thereby; and (d) any cause of
action, suit or claim brought or made against such Investor Indemnitee not
directly arising solely out of any action or inaction of such Investor
Indemnitee, and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Investor
Indemnitees.  To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such loss, claim, damage, liability, expense or action
effected without its consent, which consent shall not be unreasonably withheld
or delayed.

     

    
      
        
        

      

      
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    Section
5.02 Indemnification by the
Investor.  In consideration of the Company’s execution and
delivery of this Agreement, and in addition to all of the Investor’s other
obligations under this Agreement, the Investor shall defend, protect, indemnify
and hold harmless the Company and all of its officers, directors, shareholders,
employees, advisors and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) and each person
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively, the “Company Indemnitees”)
to the same extent as the foregoing indemnity to the Investor, but only with
respect to the written information relating to the Investor furnished to the
Company by or on behalf to the Investor specifically for inclusion in the
document referred to in the foregoing indemnity.

     

    Section
5.03 Notice of
Claim.  Promptly after receipt by an Investor Indemnitee or
Company Indemnitee, as applicable, under this Article V of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving an Indemnified Liability, such Investor Indemnitee or
Company Indemnitee, as applicable, shall, if an Indemnified Liability in respect
thereof is to be made against any indemnifying party under this Article V
deliver to the indemnifying party a written notice of the commencement thereof;
but the failure to so notify the indemnifying party will not relieve it of
liability under this Article V unless and to the extent the indemnifying party
did not otherwise learn of such action and such failure result in the forfeiture
by the indemnifying party of substantial rights and defenses and will not, in
any event, relieve the indemnifying party from any obligations provided in this
Article V.  The indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Investor
Indemnitee or Company Indemnitee, as applicable; provided, however, that an
Investor Indemnitee or Company Indemnitee, as applicable, shall have the right
to retain its own counsel with the reasonable fees and expenses of not more than
one counsel for such Investor Indemnitee or Company Indemnitee, as applicable,
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Investor Indemnitee or Company Indemnitee, as applicable, and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Investor Indemnitee or Company Indemnitee, as applicable, and any
other party represented by such counsel in such proceeding. The Investor
Indemnitee or Company Indemnitee, as applicable, 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 Investor Indemnitee or Company
Indemnitee, as applicable, which relates to such action or claim.  The
indemnifying party shall keep the Investor Indemnitee or Company Indemnitee, as
applicable, fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto.  No indemnifying party
shall be liable for any settlement of any action, claim or proceeding effected
without its prior written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall, without the prior written
consent of the Investor Indemnitee or Company Indemnitee, as applicable, consent
to entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Investor Indemnitee or Company Indemnitee, as applicable, of a
release from all liability in respect to such claim or
litigation.  Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Investor Indemnitee
or Company Indemnitee, as applicable, with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been
made.

     

    
      
        
        

      

      
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    Section
5.04 Payment.  The
indemnification required by this Article V with respect to any fees or expenses
payable by the indemnifying party under Section 5.03 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received and the indemnification required with
respect to any other amounts due under this Article V shall be due upon final
adjudication or settlement of any claims to which this Article V
applies.

     

    Section
5.05 Remedies.  The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Investor Indemnitee or Company Indemnitee, as
applicable, against the indemnifying party or others, and (ii) any liabilities
the indemnifying party may be subject to pursuant to the law.  The
obligations of the parties to indemnify or make contribution under this Article
V shall survive termination.

     

    Article
VI.

     

    Covenants
of the Company

     

    Section
6.01 Registration
Statement.

     

    
      	
              (a)  

            	
              Filing of a
      Registration Statement.  The Company shall prepare and
      file with the SEC a Registration Statement, or multiple Registration
      Statements for the resale by the Investor of the Registrable
      Securities.  The Company in its sole discretion may chose when
      to file such Registration Statements; provided, however, that
      the Company shall not have the right or the ability to request any
      Advances until the effectiveness of a Registration Statement in respect of
      Shares to be issued pursuant to such Advance.  Each Registration
      Statement shall contain a “Plan of
      Distribution” section in substantially the form attached hereto as
      Exhibit
      D.

            


    

     

    
      	
              (b)  

            	
              Maintaining a
      Registration Statement.  The Company shall cause any
      Registration Statement that has been declared effective to remain
      effective at all times until all Registrable Securities contained in such
      Registration Statement cease to be Registrable Securities (the “Registration
      Period”).  Each Registration Statement (including any
      amendments or supplements thereto and prospectuses contained therein)
      shall not contain any untrue statement of a material fact or omit to state
      a material fact required to be stated therein, or necessary to make the
      statements therein, in light of the circumstances in which they were made,
      not misleading.

            


    

     

    
      
        
        

      

      
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              (c)  

            	
              Filing
      Procedures.  Prior to the filing of any Registration
      Statement with the SEC, the Company shall, (i) furnish a draft of such
      Registration Statement to the Investor for its review and comment and (ii)
      not less than three business days prior to the filing of a Registration
      Statement and not less than one business day prior to the filing of any
      related amendments and supplements to all Registration Statements (except
      for any amendments or supplements caused by the filing of any annual
      reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports
      on Form 8-K), furnish to the Investor copies of all such documents
      proposed to be filed, which documents (other than those incorporated or
      deemed to be incorporated by reference) will be subject to the reasonable
      and prompt review of the Investor.  The Investor shall furnish
      comments on a Registration Statement to the Company within 24 hours of the
      receipt thereof.

            


    

     

    
      	
              (d)  

            	
              Delivery of Final
      Documents.  The Company shall furnish to the Investor
      without charge, (i) at least one copy of such Registration Statement as
      declared effective by the SEC and any amendment(s) thereto, including
      financial statements and schedules, all documents incorporated therein by
      reference, all exhibits and each preliminary prospectus, (ii) at the
      request of the Investor, 10 copies of the final prospectus included in
      such Registration Statement and all amendments and supplements thereto (or
      such other number of copies as the Investor may reasonably request) and
      (iii) such other documents as the Investor may reasonably request from
      time to time in order to facilitate the disposition of the Registrable
      Securities owned by the Investor.

            


    

     

    
      	
              (e)  

            	
              Amendments and Other
      Filings.  The Company shall (i) prepare and file with the
      SEC such amendments (including post-effective amendments) and supplements
      to a Registration Statement and the related prospectus used in connection
      with such Registration Statement, which prospectus is to be filed pursuant
      to Rule 424 promulgated under the Securities Act, as may be necessary to
      keep such Registration Statement effective at all times during the
      Registration Period, and prepare and file with the SEC such additional
      Registration Statements in order to register for resale under the
      Securities Act all of the Registrable Securities; (ii) cause the related
      prospectus to be amended or supplemented by any required prospectus
      supplement (subject to the terms of this Agreement), and as so
      supplemented or amended to be filed pursuant to Rule 424; (iii) provide
      the Investor copies of all correspondence from and to the SEC relating to
      a Registration Statement (provided that the Company may excise any
      information contained therein which would constitute material non-public
      information, and (iv) comply with the provisions of the Securities Act
      with respect to the disposition of all Registrable Securities of the
      Company covered by such Registration Statement until such time as all of
      such Registrable Securities shall have been disposed of in accordance with
      the intended methods of disposition by the seller or sellers thereof as
      set forth in such Registration Statement.  In the case of
      amendments and supplements to a Registration Statement which are required
      to be filed pursuant to this Agreement (including pursuant to this Section
      6.01(e)) by reason of the Company’s filing a report on Form 10-K, Form
      10-Q or Form 8-K or any analogous report under the Exchange Act, the
      Company shall incorporate such report by reference into the Registration
      Statement, if applicable, or shall file such amendments or supplements
      with the SEC either on the day on which the Exchange Act report is filed
      which created the requirement for the Company to amend or supplement the
      Registration Statement, if feasible, or otherwise promptly
      thereafter.

            


    

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    
      	
              (f)  

            	
              Blue-Sky.  The
      Company shall use its best efforts to (i) register and qualify the
      Registrable Securities covered by a Registration Statement under such
      other securities or “blue sky” laws of such jurisdictions in the United
      States as the Investor reasonably requests, (ii) prepare and file in
      those jurisdictions, such amendments (including post-effective amendments)
      and supplements to such registrations and qualifications as may be
      necessary to maintain the effectiveness thereof during the Registration
      Period, (iii) take such other actions as may be necessary to maintain such
      registrations and qualifications in effect at all times during the
      Registration Period, and (iv) take all other actions reasonably necessary
      or advisable to qualify the Registrable Securities for sale in such
      jurisdictions; provided, however, that the Company shall not be required
      in connection therewith or as a condition thereto to (w) make any change
      to its certificate of incorporation or by-laws, (x) qualify to do business
      in any jurisdiction where it would not otherwise be required to qualify
      but for this Section 6.01(f), (y) subject itself to general taxation in
      any such jurisdiction, or (z) file a general consent to service of process
      in any such jurisdiction.  The Company shall promptly notify the
      Investor of the receipt by the Company of any notification with respect to
      the suspension of the registration or qualification of any of the
      Registrable Securities for sale under the securities or “blue sky” laws of
      any jurisdiction in the United States or its receipt of actual notice of
      the initiation or threat of any proceeding for such
    purpose.

            


    

     

    Section
6.02 Listing of Common
Stock.  The Company shall at all times maintain the Common
Stock’s authorization for quotation on the Principal Market.

     

    Section
6.03 Exchange Act
Registration.  The Company will cause its Common Stock to
continue to be registered under Section 12(g) of the Exchange Act, will file in
a timely manner all reports and other documents required of it as a reporting
company under the Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend or fail to comply with
its reporting and filing obligations under the Exchange Act.

     

    Section
6.04 Transfer Agent
Instructions.  Upon effectiveness of the Registration Statement
the Company shall deliver instructions to its transfer agent to issue shares of
Common Stock to the Investor free of restrictive legends on or before each Share
Issuance Date.

     

    Section
6.05 Corporate
Existence.  The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.

     

    Section
6.06 Notice of Certain Events
Affecting Registration; Suspension of Right to Make an
Advance.  The Company will immediately notify the Investor, and
confirm in writing, upon its becoming aware of the occurrence of any of the
following events in respect of a Registration Statement or related prospectus
relating to an offering of Registrable Securities: (i) receipt of any request
for additional information by the SEC or any other Federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the occurrence of any event which makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or of the necessity to amend the Registration Statement or
supplement a related prospectus to comply with the Securities Act or any other
law; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus.  The Company shall not deliver to the Investor
any Advance Notice, and the Investor shall not sell any Shares pursuant to a
Registration Statement, during the continuation of any of the foregoing
events.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    Section
6.07 Consolidation;
Merger.  If an Advance Notice has been delivered to the
Investor and the transaction contemplated in such Advance Notice has not yet
been closed in accordance with Section 2.02 hereof, then the Company shall
not effect any merger or consolidation of the Company with or into, or a
transfer of all or substantially all the assets of the Company to another entity
(a “Consolidation
Event”).

     

    Section
6.08 Issuance of the Company’s
Common Stock.  The sale of the shares of Common Stock hereunder
shall be made in accordance with the provisions and requirements of Regulation D
and any applicable state securities law.

     

    Section
6.09 Review of Public
Disclosure.  All SEC filings (including without limitation, all
filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K,
etc.) and other public disclosures made by the Company, including, without
limitation, all press releases, investor relations materials, and scripts of
analysts meetings and calls, shall be reviewed and approved for release by the
Company’s attorneys and if containing financial information, the Company’s
independent certified public accountants.

     

    Section
6.10 Market
Activities. The Company will not, directly or indirectly, take any
action designed to cause or result in, or that constitutes or might reasonably
be expected to constitute, the stabilization or manipulation of the price of any
security of the Company under Regulation M of the Exchange Act.

     

    Section
6.11 Opinion of Counsel
Concerning Resales.  Provided that the Investor’s resale of
Common Stock received pursuant to this Agreement may be freely made by the
Investor either pursuant to an effective Registration Statement, in accordance
with Rule 144, or otherwise, the Company shall obtain for the Investor, at the
Company’s expense, any and all opinions of counsel which may be required by the
Company’s transfer agent to issue such shares free of restrictive legends, or to
remove legends from such shares.

     

    Section
6.12 Expenses.  The
Company, whether or not the transactions contemplated hereunder are consummated
or this Agreement is terminated, will pay all expenses incident to the
performance of its obligations hereunder, including but not limited to (i) the
preparation, printing and filing of the Registration Statement and each
amendment and supplement thereto, of each prospectus and of each amendment and
supplement thereto; (ii) the preparation, issuance and delivery of any Shares
issued pursuant to this Agreement, (iii) all fees and disbursements of the
Company’s counsel, accountants and other advisors, (iv) the qualification of the
Shares under securities laws in accordance with the provisions of this
Agreement, including filing fees in connection therewith, (v) the printing and
delivery of copies of any prospectus and any amendments or supplements thereto,
(vi) the fees and expenses incurred in connection with the listing or
qualification of the Shares for trading on the Principal Market, or (vii) filing
fees of the SEC and the Principal Market.

     

    Section
6.13 Sales.  Without
the written consent of the Investor, the Company will not, directly or
indirectly, offer to sell, sell, contract to sell, grant any option to sell or
otherwise dispose of any shares of Common Stock (other than the Shares offered
to the Investor pursuant to this Agreement), securities convertible into or
exchangeable for Common Stock, warrants or any rights to purchase or acquire
Common Stock, or derivatives of Common Stock during the period beginning on the
5th Trading Day immediately prior to an Advance Notice Date and ending on the
5th Trading Day immediately following the corresponding Share Issuance
Date.

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    Section
6.14 Current
Report.  Promptly after the date hereof (and prior to the
Company delivering an Advance Notice to the Investor hereunder), the Company
shall file with the SEC a report on Form 8-K or such other appropriate form as
determined by counsel to the Company, relating to the transactions contemplated
by this Agreement and shall provide the Investor with a reasonable opportunity
to review such report prior to its filing.

     

    Section
6.15 Compliance With
Laws.  The Company will not, directly or indirectly, take any
action designed to cause or result in, or that constitutes or might reasonably
be expected to constitute, the stabilization or manipulation of the price of any
security of the Company or which caused or resulted in, or which would in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.

     

    Section
6.16 Due
Diligence.  From time to time, at the request of the Investor,
the Company shall make available for inspection by (i) the Investor and
(ii)  one firm of accountants or other agents or advisors retained by the
Investor (collectively, the “Inspectors”) all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the “Records”), as shall
be reasonably deemed necessary by each Inspector, and cause the Company’s
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree, and
the Investor hereby agrees, to hold in strict confidence and shall not make any
disclosure (except to an Investor) or use any Record or other information which
the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the Securities Act, (b)
the release of such Records is requested or ordered by a court or government
body of competent jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure in violation of
this or any other agreement of which the Inspector and the Investor has
knowledge.  The Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
attempt to prevent disclosure of, or to attempt to obtain a protective order
for, the Records deemed confidential. Anything in the foregoing notwithstanding,
if the Investor requests additional due diligence under this Section 6.16, the
Company’s obligation under Article VIII to disclose material non-public
information to the Investor shall be waived.

     

    Section
6.17 Insider
Trading.  Notwithstanding any other provision of this
Agreement, the Company shall not deliver an Advance Notice during the period
beginning 10 Trading Days before the Company’s next subsequent Annual Report on
Form 10-K or Quarterly Report on Form 10-Q is filed with the SEC and ending 2
Trading Days after such Annual Report on Form 10-K or Quarterly Report on Form
10-Q is filed with the SEC or during any other period in which the Company is,
or could be deemed to be, in possession of material non-public
information.

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    Article
VII.

     

    Conditions
for Advance and Conditions to Closing

     

    Section
7.01 Conditions Precedent to the
Right of the Company to Deliver an Advance Notice and the Obligation of the
Investor to Purchase Shares.  The right of the Company to
deliver an Advance Notice and the obligations of the Investor hereunder with
respect to an Advance is subject to the satisfaction, on each Advance Notice
Date and Share Issuance Date (a “Condition Satisfaction
Date”), of each of the following conditions:

     

    
      	
              (a)  

            	
              Accuracy of the
      Company’s Representations and Warranties.  The
      representations and warranties of the Company which are qualified by
      materiality shall be true and current in all respects and the
      representations and warranties which are not so qualified shall be true
      and correct in all material respects in each case, as of each Condition
      Satisfaction Date and as of the date
hereof.

            


    

     

    
      	
              (b)  

            	
              Registration of the
      Common Stock with the SEC.  There is an effective
      Registration Statement pursuant to which the Investor is permitted to
      utilize the prospectus thereunder to resell all of the shares of Common
      Stock issuable pursuant to such Advance Notice and the Company is not
      aware of any of the events set forth in Section 6.06
      hereof.  The Company shall have filed with the SEC in a timely
      manner all reports, notices and other documents required of a “reporting
      company” under the Exchange Act and applicable SEC
      regulations.

            


    

     

    
      	
              (c)  

            	
              Authority.  The
      Company shall have obtained all permits and qualifications required by any
      applicable state for the offer and sale of the shares of Common Stock, or
      shall have the availability of exemptions therefrom.  The sale
      and issuance of the shares of Common Stock and the resale of such shares
      by the Investor shall be legally permitted by all laws and regulations to
      which the Company or the Investor, as
  applicable.

            


    

     

    
      	
              (d)  

            	
              No Material
      Notice.  None of the events set forth in Section 6.06
      hereof shall have occurred and be
continuing.

            


    

     

    
      	
              (e)  

            	
              Performance by the
      Company.  The Company shall have performed, satisfied and
      complied in all material respects with all covenants, agreements and
      conditions required by this Agreement or any related agreement to be
      performed, satisfied or complied with by the Company at or prior to each
      Condition Satisfaction Date.

            


    

     

    
      	
              (f)  

            	
              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 that prohibits or directly and adversely affects
      any of the transactions contemplated by this Agreement or any related
      agreement, and no proceeding shall have been commenced that may have a
      Material Adverse Effect.

            


    

     

    
      	
              (g)  

            	
              No Suspension of
      Trading in or Delisting of Common Stock.  The Common
      Stock is trading on a Principal Market and all of the shares issuable
      pursuant to such Advance Notice will be listed or quoted for trading on
      such Principal Market and the Company believes, in good faith, that
      trading of the Common Stock on a Principal Market will continue
      uninterrupted for the foreseeable future.  The issuance of
      shares of Common Stock with respect to the applicable Advance Notice will
      not violate the stockholder approval requirements of the Principal
      Market.  The Company shall not have received any notice
      threatening the continued listing of the Common Stock on the Principal
      Market.

            


    

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    
      	
              (h)  

            	
              Maximum Advance
      Amount.  The amount of an Advance requested by the
      Company shall not exceed the Maximum Advance
  Amount.

            


    

     

    
      	
              (i)  

            	
              Authorized.  There
      shall be a sufficient number of authorized but unissued and otherwise
      unreserved shares of Common Stock for the issuance of all of the shares
      issuable pursuant to such Advance
Notice.

            


    

     

    
      	
              (j)  

            	
              Opinion of
      Counsel.  The Investor shall have received an opinion
      from counsel to the Company in the form attached hereto as Exhibit
      C.

            


    

     

    
      	
              (k)  

            	
              Executed Advance
      Notice.  The Investor shall have received the Advance
      Notice executed by an officer of the Company that the representations
      contained in such Advance Notice is true and correct as of each Condition
      Satisfaction Date.

            


    

     

    
      	
              (l)  

            	
              Comfort
      Letters.  The Company’s independent accounts shall have
      furnished to the Investor any letters requested pursuant to Section 6.17
      containing statements and information of the type ordinarily included in
      accountants’ “comfort letters” to underwriters with respect to the
      financial statements of the
Company.

            


    

     

    
      	
              (m)  

            	
              Consecutive Advance
      Notices.  Except with respect to the first Advance
      Notice, the Company shall have delivered all Shares relating to all prior
      Advances.

            


    

     

    
      	
              (n)  

            	
              Consolidation
      Event.  The Company shall not have effected any merger or
      consolidation with or into, or a transfer of all or substantially all the
      assets of the Company to another
entity.

            


    

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    Article
VIII.

     

    Non-Disclosure
of Non-Public Information

     

    Nothing
herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, provided, however, that
notwithstanding anything herein to the contrary, during any period from and
including the delivery of an Advance Notice through and including the occurrence
of the related Share Issuance Date, the Company will immediately notify the
Investor or its advisors or representatives of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading.

     

    The
Company shall hold in confidence and not make any disclosure of information
concerning the Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement.  The
Company agrees that it shall, upon learning that disclosure of such information
concerning the Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to the
Investor and allow the Investor, at the Investor’s expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

     

    Article
IX.

     

    Choice
of Law/Jurisdiction

     

    This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of New Jersey without regard to the principles of conflict of
laws.  The parties further agree that any action between them shall be
heard in Hudson County, New Jersey and expressly consent to the jurisdiction and
venue of the Superior Court of New Jersey, sitting in Hudson County, New Jersey
and the United States District Court of New Jersey, sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to the
paragraph.

     

    Article
X.Assignment;
Termination

     

    Section
10.01 Assignment.  Neither
this Agreement nor any rights of the parties hereto may be assigned or delegated
to any other Person.

     

    Section
10.02 Termination.

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    
      	
              (a)  

            	
              Unless
      earlier terminated as provided hereunder, this Agreement shall terminate
      automatically on the earliest of (i) the two-year anniversary of the
      Effective Date and (ii) the date on which the Investor's Advances pursuant
      to this Agreement in the aggregate are equal to the Commitment
      Amount.

            


    

     

    
      	
              (b)  

            	
              The
      Company may terminate this Agreement effective upon fifteen Trading Days’
      prior written notice to the Investor; provided that (i) there are no
      Advances outstanding, and (ii) the Company has paid all amounts owed to
      the Investor pursuant to and fulfilled all of its other obligations under
      this Agreement.  This Agreement may be terminated at any time by
      the mutual written consent of the parties, effective as of the date of
      such mutual written consent unless otherwise provided in such written
      consent.  Notwithstanding any termination of this Agreement by
      the Company hereunder, so long as the Investor owns any shares of Common
      Stock issued hereunder, unless all of such shares of Common Stock may be
      resold by the Investor without registration and without any time, volume
      or manner limitations pursuant to Rule 144, the Company shall not suspend
      or withdraw the Registration Statement or otherwise cause the Registration
      Statement to become ineffective, or voluntarily delist the Common Stock
      from the Principal Markets.

            


    

     

    
      	
              (c)  

            	
              The
      obligation of the Investor to make an Advance to the Company pursuant to
      this Agreement shall terminate permanently (including with respect to a
      Share Issuance Date that has not yet occurred) in the event that (i) there
      shall occur any stop order or suspension of the effectiveness of the
      Registration Statement for an aggregate of 50 Trading Days, other than due
      to the acts of the Investor, during the Commitment Period, or (ii) the
      Company shall at any time fail materially to comply with the requirements
      of Article VI and such failure is not cured within 30 days after receipt
      of written notice from the Investor, provided, however, that
      this termination provision shall not apply to any period commencing upon
      the filing of a post-effective amendment to such Registration Statement
      and ending upon the date on which such post effective amendment is
      declared effective by the SEC.

            


    

     

    
      	
              (d)  

            	
              Nothing
      in this Section 10.02 shall be deemed to release the Company or the
      Investor from any liability for any breach under this Agreement or to
      impair the rights of the Company and the Investor to compel specific
      performance by the other party of its obligations under this
      Agreement.  In addition to other provisions which, by their
      terms provide for survival of the termination of this Agreement, the
      indemnification provisions contained in Article V shall survive
      termination hereunder Article
V.

            


    

     

    Article
XI.Notices

     

    Any
notices, consents, waivers, or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S. certified
mail, return receipt requested; (iii) 3 days after being sent by U.S. certified
mail, return receipt requested, or (iv) 1 day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.  The addresses and facsimile numbers for
such communications, except for Advance Notices which shall be delivered in
accordance with Section 2.01(b) hereof and Settlement Documents which shall be
delivered in accordance with Section 2.02(a) hereof, shall be:

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

     

    
      	
              If
      to the Company, to:

            	
              Lotus
      Pharmaceuticals Inc.

            
	 
      	
              16
      Cheng Zhuang Road

              Feng
      Tai District

              Beijing
      100071

              People’s
      Republic of China

            
	 
      	
              Attention:     
      Zhongyi Liu, Chief Executive Officer

            
	 
      	
              Telephone:    86-10-63899868

            
	 
      	
              Facsimile:       86-10-6389
      9867

            
	 
      	
              With
      a copy by email: bjlfyy@163.com

            
	 	 
	
              With
      a copy to:

            	 
      
	 
      	
              McLaughlin
      & Stern, LLP

              260
      Madison Avenue

              New
      York, New York 10016

            
	 
      	 
      
	 
      	
              Attention:     
      Steven Schuster, Esq.

            
	 
      	
              Telephone:    (212)
      448-6216

            
	 
      	
              Facsimile:       (212)
      448-0066

            
	 
      	 
      
	
              If
      to the Investor(s):

            	
              YA
      Global Master SPV Ltd.

            
	 
      	
              101
      Hudson Street –Suite 3700

            
	 
      	
              Jersey
      City, NJ 07302

            
	 
      	
              Attention:     
      Mark Angelo

            
	 
      	
              Portfolio
  Manager

            
	 
      	
              Telephone:    (201)
      985-8300

            
	 
      	
              Facsimile:       (201)
      985-8266

            
	 
      	 
      
	
              With
      a Copy to:

            	
              David
      Gonzalez, Esq.

            
	 
      	
              101
      Hudson Street – Suite 3700

            
	 
      	
              Jersey
      City, NJ 07302

            
	 
      	
              Telephone:    (201)
      985-8300

            
	 
      	
              Facsimile:       (201)
      985-8266

            
	 
      	 
      


    

    


    Each
party shall provide 5 days’ prior written notice to the other party of any
change in address or facsimile number.

     

    Article
XII.Miscellaneous

     

    Section
12.01 Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party.

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

     

    Section
12.02 Entire Agreement;
Amendments.  This Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Investor makes any representation, warranty, covenant or
undertaking with respect to such matters.  No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

     

    Section
12.03 Reporting Entity for the
Common Stock.  The reporting entity relied upon for the
determination of the trading price or trading volume of the Common Stock on any
given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or
any successor thereto.  The written mutual consent of the Investor and
the Company shall be required to employ any other reporting entity.

     

    Section
12.04  Fees.

     

    
      	
              (a)  

            	
              Commitment
      Fee.

            


    

     

    
      	
              (i)  

            	
              The
      Company shall pay to the Investor a commitment fee (the “Commitment
      Fee”) of $300,000 on the date
hereof.

            


    

     

    
      	
              (ii)  

            	
              The
      Company may at its discretion pay the Commitment Fee either (i) in cash;
      (ii) issue shares of Common Stock to the Investor, or (iii) a combination
      of both (i) and (ii).  In the event any portion of the
      Commitment Fee is paid with shares of Common Stock, the number of the
      shares of Common Stock to be issued will be determined by dividing the
      portion of the Commitment Fee to be paid in by shares of Common Stock by
      the VWAP of the Common Stock on the last Trading Day prior to the date
      hereof (any such shares, the “Investor’s Commitment
      Shares”).  The Investor’s Commitment Shares shall be
      deemed fully earned as of the date hereof regardless of the amount of
      Advance, if any, that the Company is able to, or chooses to request
      hereunder.  The Investor’s Commitment Shares shall be deemed
      fully earned as of the date hereof.

            


    

     

    
      	
              (b)  

            	
              Due Diligence and
      Other Fee. Each of the parties shall pay its own fees and expenses
      (including the fees of any attorneys, accountants, appraisers or others
      engaged by such party) in connection with this Agreement and the
      transactions contemplated hereby, except that the Company shall pay (i) a
      due diligence fee of $15,000 to Yorkville Advisors HK Limited, which has
      been paid prior to the date hereof and (ii) the Investor’s legal fees of
      up to $40,000 of which $30,000 has been paid prior to the date hereof and
      the remaining $10,000 shall be paid upon demand from the
      Investor.

            


    

     

    Section
12.05 Brokerage.  Except
for the advisor engaged by the Company as set forth in Schedule 12.05, each of
the parties hereto represents that it has had no dealings in connection with
this transaction with any finder or broker who will demand payment of any fee or
commission from the other party.  The Company on the one hand, and the
Investor, on the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any person claiming brokerage
commissions or finder’s fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.

     

     [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    


    IN WITNESS WHEREOF, the
parties hereto have caused this Standby Equity Distribution Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

     

    
      	 	COMPANY:	 
	 	Lotus
      Pharmaceuticals Inc. 	 
	 	 
      	 
      	 
	 	By:	
              /s/ Zhongyi
      Liu                                                                

            	 
	 	Name: 	
              Zhongyi
      Liu

            	 
	 	Title:	
              Chief
      Executive Officer

            	 
	 	 
      	 
      	 
	 	 
      	 
      	 
	 	INVESTOR:	 
	 	YA
      Global Master SPV Ltd.	 
	 	 
      	 
      	 
	 	By: 	
              Yorkville
      Advisors, LLC

            	 
	 	Its:	
              Investment
      Manager

            	 
	 	   	 
      	 
	 	By:  	
              /s/ David
      Gonzalez                                                      

            	 
	 	Name:  	
              David
      Gonzalez

            	 
	 	Title:  	
              Managing
      Member

            	 
	 	 
      	 
      	 


    

    


    


    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

     

    ADVANCE
NOTICE

     

    Lotus
Pharmaceuticals Inc.

     

    The
undersigned, _______________________ hereby certifies, with respect to the sale
of shares of Common Stock of LOTUS PHARMACEUTICALS INC. (the “Company”) issuable in
connection with this Advance Notice, delivered pursuant to the Standby Equity
Distribution Agreement (the “Agreement”), as
follows:

     

    1.           The
undersigned is the duly elected ______________ of the Company.

     

    2.           There
are no fundamental changes to the information set forth in the Registration
Statement which would require the Company to file a post effective amendment to
the Registration Statement.

     

    3.           The
Company has performed in all material respects all covenants and agreements to
be performed by the Company and has complied in all material respects with all
obligations and conditions contained in this Agreement on or prior to the
Advance Notice Date, and shall continue to perform in all material respects all
covenants and agreements to be performed by the Company through the applicable
Share Issuance Date.  All conditions to the delivery of this Advance
Notice are satisfied as of the date hereof.

     

    4.           The
undersigned hereby represents, warrants and covenants that it has made all
filings (“SEC
Filings”) required to be made by it pursuant to applicable securities
laws (including, without limitation, all filings required under the Securities
Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K, etc.).  All
SEC Filings and other public disclosures made by the Company, including, without
limitation, all press releases, analysts meetings and calls, etc. (collectively,
the “Public
Disclosures”), have been reviewed and approved for release by the
Company’s attorneys and, if containing financial information, the Company’s
independent certified public accountants.  None of the Company’s
Public Disclosures contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

     

    5.           The
Advance requested is _____________________.

     

    6.           4.99%
of the outstanding Common Stock of the Company as of the date hereof is
_______.

     

    7.           The
Minimum Acceptable Price with respect to this Advance is
______________.

     

    The
undersigned has executed this Certificate this ____ day of
_________________.

     

     

    
    

     

    
      	 	LOTUS PHARMACEUTICALS
      INC.	 
	 	 	 	 
	 	By: 	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 


    

     

     

    
      Please
deliver this Advance Notice by email, mail or facsimile with a follow up phone
call to:

      Yorkville Advisors, LLC

      101 Hudson Street, Suite 3700, Jersey
City, NJ 07302

      Fax: (201) 946-0851

      Attention:  Trading
Department and Compliance Officer

      Confirmation Telephone
Number:  (201) 985-8300 ext. 129.

      Email address:
trading@yorkvilleadvisors.com

    

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

     

    
      EXHIBIT
B

    

    FORM
OF SETTLEMENT DOCUMENT

    


    VIA FACSIMILE &
EMAIL

    


    
      	
              Lotus
      Pharmaceuticals Inc.

            	
              Copy
      to:  Big Ben
      Venture Partner AB

              Email:  ben.hedenberg@bigben.se with copy to elsa@bigben.se.

               

            	 
      
	
              Attn:  Zhongyi Liu, Chief Executive
      Officer

            	 
      	 
      
	
              Fax:     86-10-6389
      9867

            	 
      
	
              Email:  bjlfyy@163.com

            	 
      


    

    


    
      	 
      	
              Below
      please find the settlement information with respect to the Advance Notice
      Date of:

            	 
      
	
              1.

            	
              Minimum
      Acceptable Price

            	
              $

            
	
              2.

            	
              Excluded
      Days (if any)

            	 
      
	
              3.

            	
              Market
      Price

            	
              $

            
	
              4.

            	
              Purchase
      Price (Higher of the Market Price X 93% or the Minimum Acceptable Price)
      per share

            	
              $

            
	
              5.

            	
              (a)
      Amount of Advance (after taking into account any adjustment pursuant to
      Section 2.01)

            	
              $

            
	
              (b)
      Commission (2.75% of Amount of Advance in 5(a))

            	
              $

            
	
              (c)
      Net Advance Amount (Amount of Advance in 5(a) – Commission in
      5(b))

            	
              $

            
	
              (d)
      Additional Amount due to Company (Additional Shares in 6(b) x Minimum
      Acceptable Price)

            	
              $

            
	
              6.

            	
              (a)
      Number of Shares due to Investor (Amount of Advance in 5(a) divided by
      Purchase Price in 4)

            	 
      
	
              (b)
      Additional Shares to be Purchased

            	 
      


    

    


    The
Company shall issue [___________] Shares due to Investor to its account as
follows:

    [Instructions
To Come]

     

    The
Investor shall disburse the amount of the Advance as follows

     

    
      
        	
                Net
      Advance Amount (5(c)) to the Company

                [Wire
      Instructions to come]

              	$
	 	 
	Commission (5(b)) to Yorkville
      Advisors HK Limited   	$


      

       

    

     

     

    
      	
               

               

            	
               

            


    

     

    
      	 	Sincerely,
	 	 
	 	YA GLOBAL MASTER SPV,
      LTD.


    

     

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

     

     

    [Company’s
signature page to the Settlement Document]

     

    Approved By Lotus Pharmaceuticals
Inc. who hereby confirms that it has
obtained all permits and qualifications required for the issuance and transfer
of the shares of Common Stock applicable to such Advance, or shall have the
availability of exemptions therefrom and that the sale and issuance of such
shares of 

     

    Common
Stock shall be legally permitted by all laws and regulations to which the
Company is subject:

     

    __________________________________

    Name:

     

    
 

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

     

    FORM
OF OPINION

     

    This
opinion is furnished to you pursuant to the Standby Equity Distribution
Agreement by and between YA Global Master SPV LTD. (the "Investor" or "you") and
Lotus Pharmaceuticals, Inc. a Nevada corporation (the "Company"), dated as of
February __, 2010, which provides for the issuance and sale by the Company of
shares of common stock, $.001 par value, per share.  The shares of
common stock issuable in connection with the Standby Equity Distribution
Agreement are referred to as the “Common Shares.”

    


    In connection with the opinions
expressed herein, we have made such examination of law as we considered
appropriate or advisable for purposes hereof. As to matters of fact material to
the opinions expressed herein, we have relied upon the representations and
warranties of the Company as to factual matters contained in and made by the
Company and you to pursuant to the Standby Equity Distribution Agreement and
upon certificates and statements of certain government officials and of officers
of the Company described below.

    


    In addition, we have examined, among
other things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents that we consider
necessary or advisable for the purpose of rendering these opinions. In such
examination we have assumed the genuineness of all signatures on original
documents, the authenticity and completeness of all documents submitted to us as
originals, the conformity to original documents of all copies submitted to us as
copies thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents where due execution and delivery are a prerequisite to
the effectiveness thereof.

    


    As used in this opinion, the expression
"to our knowledge" refers to the current actual knowledge of the attorneys of
this firm who have worked on matters for the Company solely in connection with
the Standby Equity Distribution Agreement and the transactions contemplated
thereby, and without any independent investigation of any underlying facts or
situations.

    


    For purposes of this opinion, we have
assumed that you have all requisite power and authority, and have taken any and
all necessary corporate action, to execute and deliver the Standby Equity
Distribution Agreement delivered by you, and we are assuming that the
representations and warranties made by you in the Standby Equity Distribution
are true and correct.

    


    The opinions contained herein are
limited to the Federal laws of the United States and the laws of the State of
New York.  Except as provided herein, we express no opinion as to the
laws of any other state or jurisdiction of the United States or of any foreign
jurisdiction. We have made no inquiry into the laws and regulations of any other
jurisdiction or jurisdictions or as to laws relating to choice of law or
conflicts of law principles.

     

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT C

     

    Based upon and subject to the
foregoing, we are of the opinion that:

    


    1.           The
Company is a corporation validly existing and in good standing under the laws of
the State of Nevada, with corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Company’s
public filings, including reports filed or furnished by the Company under the
Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and
the rules and regulations of the Commission thereunder (the “Public Filings”) and
to enter into and perform its obligations under the Standby Equity Distribution
Agreement.

    


    2.           The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Standby Equity Distribution Agreement and to
issue the Common Shares in accordance with their terms.  The execution
and delivery of the Standby Equity Distribution Agreement by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.  The Standby Equity Distribution Agreement has been duly
executed and delivered, and the Standby Equity Distribution Agreement
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.

    


    3.           The
Common Shares are duly authorized and, upon issuance in accordance with the
terms of the Standby Equity Distribution Agreement, will be duly and validly
issued, fully paid and nonassessable, free of any liens, encumbrances and
preemptive or similar rights contained in the Company’s Certificate of
Incorporation or By-laws or, to our knowledge, in any agreement filed by the
Company as an exhibit to the Company’s Public Filings.

    


    4.           The
execution, delivery and performance of the Standby Equity Distribution Agreement
by the Company and the consummation by the Company of the transactions
contemplated thereby (other than performance by the Company of its obligations
under the indemnification sections of such agreements, as to which no opinion
need be rendered) will not (i) result in a violation of the Company’s
Certificate of Incorporation or By-Laws; (ii) to our knowledge, conflict with,
or constitute a default (or an event that 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 or, indenture filed by
the Company as an exhibit to the Company's Public Filings; or (iii) to our
knowledge, result in a violation of any federal or Nevada law, rule or
regulation, order, judgment or decree applicable to the Company or by which any
property or asset of the Company is bound or affected.

    


    5.           Based
upon your representations, warranties and covenants contained in the Transaction
Documents, the Common Shares may be issued to you without registration under the
Securities Act of 1933, as amended.

    


    6.           To
our knowledge and other than as set forth in the Public Filings, there are no
legal or governmental proceedings pending to which the Company is a party or of
which any property or assets of the Company is subject which is required to be
disclosed in any Public Filings.

     

    
      
        
        

      

      
        -33-

        
          

        

      

      
        
        

      

    

     

    Our
opinion in paragraph 2 above as to the enforceability of the Standby Equity
Distribution Agreement is subject to the limitation that certain provisions of
the Standby Equity Distribution Agreement (including, without limitation,
indemnification provisions may not be enforceable, in whole or in part, under
the laws or public policies of the United States, Nevada or New
Jersey.

    


    We
express no opinion and assume no responsibility as to the effect of, or
consequences resulting from, any legislative act or other change in law
occurring after the date of this opinion which may alter or modify this
opinion.

    


    This opinion is furnished to you for
your benefit in connection with the transactions described above and may not be
relied upon by any other person or for any other purpose without our prior
written consent.

    


     

     

     

     

    
      	 	Very truly
      yours,
	 	 
	 	MCLAUGHLIN &
      STERN, LLP


    

     

    
      
        
        

      

      
        -34-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT D

     

    PLAN OF
DISTRIBUTION

     

    The
selling stockholder of the common stock and any of its pledgees, assignees and
successors-in-interest (the “Selling Stockholder”)
may, from time to time, sell any or all of their shares of common stock on the
OTC Bulletin Board or any other stock exchange, market or trading facility on
which the shares are traded or in private transactions.  These sales
may be at fixed or negotiated prices.  A Selling Stockholder may use
any one or more of the following methods when selling shares:

     

    
      	
              ●  
      

            	
              ordinary brokerage transactions and transactions in which the broker
      dealer solicits purchasers;

            


    

     

    
      	
              
                ●  
      

              

            	
              block trades in which the broker dealer will attempt to sell the
      shares as agent but may position and resell a portion of the block as
      principal to facilitate the transaction;

            


    

     

    
      	
              
                
                  ●  
      

                

              

            	
              purchases by a broker-dealer as principal and resale by the broker
      dealer for its account;

            


    

     

    
      	
              
                ●  
      

              

            	
              an exchange distribution in accordance with the rules of the
      applicable exchange;

            


    

     

    
      	
              
                ●  
      

              

            	
              privately negotiated transactions;

            


    

     

    
      	
              
                ●  
      

              

            	
              broker-dealers may agree with the Selling Stockholders to sell a
      specified number of such shares at a stipulated price per
  share;

            


    

     

    
      	
              
                ●  
      

              

            	
              through the writing or settlement of options or other hedging
      transactions, whether through an options exchange or
  otherwise;

            


    

     

    
      	
              
                ●  
      

              

            	
              a combination of any such methods of sale;
or

            


    

     

    
      	
              
                ●  
      

              

            	
              any
      other method permitted pursuant to applicable
  law.

            


    

     

    The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”), if
available, rather than under this prospectus.

     

    Broker-dealers
engaged by the Selling Stockholders may arrange for other broker dealer to
participate in sales.  Broker-dealers may receive commissions or
discounts from the Selling Stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.

     

    In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the Common
Stock in the course of hedging the positions they assume.  The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).

     

    
      
        
        

      

      
        -35-

        
          

        

      

      
        
        

      

    

     

    YA Global
is, and any other Selling Stockholder, broker-dealer or agent that are involved
in selling the shares may be deemed to be, an “underwriter” within the meaning
of the Securities Act in connection with such sales.  In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.  Each Selling
Stockholder has informed the Company that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%).

     

    The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares.  The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

     

    Because
YA Global is, and any other Selling Stockholder may be deemed to be, an
“underwriter” within the meaning of the Securities Act, they will be subject to
the prospectus delivery requirements of the Securities Act including Rule 172
thereunder.  In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than under this prospectus.  There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the Selling Stockholders.

     

    We agreed
to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume limitations by reason of Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect.  The resale shares will be sold
only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

     

    Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution.  In addition, the Selling Stockholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person.  We will make copies of this prospectus available to the
Selling Stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).

     

    
      
        
        

      

      
        -36-

        
          

        

      

      
        
        

      

    

     

    Schedule
4.03

     

    
      	
              (i)  

            	
              Outstanding
      options, warrants, scrip, rights to subscribe to, calls or commitments of
      any character whatsoever relating to, or securities or rights convertible
      into, any shares of capital stock of the Company or any of its
      subsidiaries, or contracts, commitments, understandings or arrangements by
      which the Company or any of its subsidiaries is or may become bound to
      issue additional shares of capital stock of the Company or any of its
      subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or
      rights convertible into, any shares of capital stock of the Company or any
      of its subsidiaries;

            


    

    


    
      	
              a.  

            	
              Outstanding
      options - None

            


    

    


    
      	
              b.  

            	
              Outstanding
      warrants

            


    

    


    
      	
              i.  

            	
              On
      February 25, 2008, the Company entered into a Convertible Redeemable
      Preferred Share and Warrant Purchase Agreement (the “Preferred Share and
      Warrant Agreement”) by and among the Company, Dr. Liu Zhong Yi and
      Mrs. Song Zheng Hong and accredited investors. The warrants are
      exercisable upon the conditions as set forth in the Preferred Share and
      Warrant Agreement. Warrants to purchase 3,726,999 shares of common stock
      from the financing in 2008 and warrants to purchase 125,000 shares of
      common stock from the financing in 2007 are currently
      outstanding.

            


    

    


    
      	
              ii.  

            	
              On
      February 11, 2010, the Company issued warrants to purchase 150,000 shares
      of common stock at an exercise price of $1.91 per share to Mclaughlin
      & Stern LLP.

            


    

    


    
      	
              c.  

            	
              Outstanding
      Convertible Preferred Stock

            


    

    


    
      	
              i.  

            	
              The
      total amount of Series A convertible redeemable preferred stock, $.001 par
      value, currently issued and outstanding is 2,478,304shares Pursuant to the
      Preferred Share and Warrant Agreement, the Company sold 5,747,118 shares
      of the Company’s Series A convertible redeemable preferred stock and par
      value $0.001 per share, upon the conditions and terms contained in the
      Preferred Share and Warrant Agreement.  2,478,304 shares of
      Series A Preferred Stock, convertible into an equal number of shares of
      common stock, are currently
outstanding.

            


    

     

    
      	
              (ii)  

            	
              outstanding
      debt securities;

            


    

    


    None.

     

    
      
        
        

      

      
        -37-

        
          

        

      

      
        
        

      

    

     

    
      	
              (iii)  

            	
              outstanding
      registration statements other than on Form S-8 and Registration
      Statements;

            


    

    


    
      	
              a.  

            	
              The
      Company filed a S-1 Registration Statement with the SEC, which was
      declared effective on July 25, 2008, and for which the Company will file a
      post-effective amendment

            


    

    


    
      	
              (iv)  

            	
              agreements
      or arrangements under which the Company or any of its subsidiaries is
      obligated to register the sale of any of its securities under the
      Securities Act (except pursuant to this
  Agreement).

            


    

    


    See (iii)
above.

    


    
      
        
        

      

      
        -38-