Document:

SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "Agreement") is dated as of
September  1,  2004,  among LJ  International  Inc.,  a British  Virgin  Islands
corporation  (the  "Company"),  and each  purchaser  identified on the signature
pages hereto (each,  including its  successors  and assigns,  a "Purchaser"  and
collectively the "Purchasers"); and

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506  promulgated  thereunder,  the Company desires to issue and sell to
each  Purchaser,  and each  Purchaser,  severally  and not  jointly,  desires to
purchase from the Company in the aggregate, up to $5,000,000 of shares of Common
Stock and Warrants on the Closing Date.

         NOW,  THEREFORE,  IN CONSIDERATION of the mutual covenants contained in
this Agreement,  and for other good and valuable  consideration  the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1  Definitions.  In addition to the terms  defined  elsewhere in this
Agreement,  for all purposes of this  Agreement,  the  following  terms have the
meanings indicated in this Section 1.1:

                  "Action"  shall  have the  meaning  ascribed  to such  term in
Section 3.1(j).

                  "Affiliate"  means any Person  that,  directly  or  indirectly
         through one or more intermediaries,  controls or is controlled by or is
         under  common  control  with a  Person  as such  terms  are used in and
         construed  under Rule 144. With respect to a Purchaser,  any investment
         fund or managed account that is managed on a discretionary basis by the
         same  investment  manager  as such  Purchaser  will be  deemed to be an
         Affiliate of such Purchaser.

                  "Closing"  means the closing of the  purchase  and sale of the
         Common Stock and the Warrants pursuant to Section 2.1.

                  "Closing   Date"  means  the  Trading  Day  when  all  of  the
         Transaction   Documents   have  been  executed  and  delivered  by  the
         applicable  parties  thereto,  and all conditions  precedent to (i) the
         Purchasers'  obligations  to pay the  Subscription  Amount and (ii) the
         Company's  obligations to deliver the Securities have been satisfied or
         waived.

                  "Closing  Price"  means  on any  particular  date (a) the last
         reported  closing  bid price per share of Common  Stock on such date on
         the Trading  Market (as reported by Bloomberg L.P. at 4:15 PM (New York
         time) as the last  reported  closing  bid  price  for  regular  session
         trading  on such  day),  or (b) if there is no such price on such date,

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         then the closing bid price on the  Trading  Market on the date  nearest
         preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York
         time) as the  closing  bid price for  regular  session  trading on such
         day),  or (c) if the Common  Stock is not then  listed or quoted on the
         Trading  Market and if prices for the Common Stock are then reported in
         the  "pink  sheets"   published  by  the  National   Quotation   Bureau
         Incorporated  (or a similar  organization  or agency  succeeding to its
         functions of reporting prices),  the most recent bid price per share of
         the Common Stock so reported,  or (d) if the shares of Common Stock are
         not then  publicly  traded the fair  market  value of a share of Common
         Stock as  determined  by an  appraiser  selected  in good  faith by the
         Purchasers of a majority in interest of the Shares then outstanding.

                   "Commission" means the Securities and Exchange Commission.

                  "Common  Stock"  means the common  stock of the  Company,  par
         value $0.01 per share,  and any securities into which such common stock
         may hereafter be reclassified.

                  "Common Stock Equivalents" means any securities of the Company
         or the  Subsidiaries  which would entitle the holder thereof to acquire
         at any time  Common  Stock,  including  without  limitation,  any debt,
         preferred stock, rights, options,  warrants or other instrument that is
         at any time convertible into or exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                  "Company   Counsel"   means  Liner   Yankelevitz   Sunshine  &
         Regenstreif LLP.

                  "Disclosure  Schedules" means the Disclosure  Schedules of the
         Company delivered concurrently herewith.

                  "Effective   Date"  means  the  date  that  the   Registration
         Statement is first declared effective by the Commission.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
         amended.

                  "Exempt  Issuance"  means the issuance of (a) shares of Common
         Stock or options  to  employees,  officers,  consultants,  advisors  or
         directors  of the  Company  pursuant  to any stock or option  plan duly
         adopted  by a  majority  of the  non-employee  members  of the Board of
         Directors of the Company or a majority of the members of a committee of
         non-employee directors established for such purpose; provided, however,
         in no event shall  issuances to  consultants  and advisors  pursuant to
         clause (a) above exceed 250,000  shares,  in the  aggregate,  in any 12
         month period,  (b) securities upon the exercise of or conversion of any
         securities  issued  hereunder,   convertible  securities,   options  or
         warrants issued and outstanding on the date of this Agreement, provided
         that  such  securities  have not been  amended  since  the date of this
         Agreement to increase the number of such securities, and (c) securities
         issued pursuant to acquisitions or strategic transactions, provided any

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         such issuance shall only be to a Person which is, itself or through its
         subsidiaries,  an operating company in a business  synergistic with the
         business of the Company and in which the Company  receives  benefits in
         addition  to  the  investment  of  funds,   but  shall  not  include  a
         transaction  in which the Company is issuing  securities  primarily for
         the purpose of raising  capital or to an entity whose primary  business
         is investing in securities.

                   "FW" means Feldman  Weinstein LLP with offices located at 420
         Lexington Avenue, Suite 2620, New York, New York 10170-0002.

                  "Intellectual Property Rights" shall have the meaning ascribed
         to such term in Section 3.1(o).

                  "Liens"   means  a  lien,   charge,   security   interest   or
         encumbrance.

                  "Material  Adverse Effect" shall have the meaning  ascribed to
         such term in Section 3.1(b).

                  "Material  Permits"  shall have the  meaning  ascribed to such
         term in Section 3.1(m).

                  "Per Share Purchase Price" equals $2.20, subject to adjustment
         for  reverse  and  forward  stock  splits,   stock   dividends,   stock
         combinations  and other similar  transactions  of the Common Stock that
         occur after the date of this Agreement.

                  "Person"  means an  individual  or  corporation,  partnership,
         trust,  incorporated  or  unincorporated  association,  joint  venture,
         limited  liability  company,  joint stock  company,  government  (or an
         agency or subdivision thereof) or other entity of any kind.

                  "Proceeding" means an action,  claim,  suit,  investigation or
         proceeding (including,  without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "Registration  Rights Agreement" means the Registration Rights
         Agreement,  dated as of the date of this  Agreement,  among the Company
         and each Purchaser, in the form of Exhibit A hereto.

                  "Registration   Statement"  means  a  registration   statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale by the Purchasers of the Shares and the Warrant
         Shares.

                  "Required  Approvals"  shall have the meaning ascribed to such
         term in Section 3.1(e).

                  "Rule  144"  means  Rule  144  promulgated  by the  Commission
         pursuant to the  Securities  Act, as such Rule may be amended from time
         to time,  or any similar rule or  regulation  hereafter  adopted by the
         Commission having substantially the same effect as such Rule.

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                  "SEC Reports" shall have the meaning  ascribed to such term in
         Section 3.1(h).

                  "Securities"  means the Shares,  the  Warrants and the Warrant
         Shares.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Shares"  means the shares of Common  Stock issued or issuable
         to each Purchaser pursuant to this Agreement.

                  "Subscription Amount" means, as to each Purchaser, the amounts
         set forth below such Purchaser's  signature block on the signature page
         hereto, in United States dollars and in immediately available funds.

                  "Subsidiary"  shall mean the  subsidiaries of the Company,  if
         any, set forth on Schedule 3.1(a).

                  "Trading  Day" means a day on which the Common Stock is traded
         on a Trading Market.

                   "Trading Market" means the following  markets or exchanges on
         which the Common  Stock is listed or quoted for  trading on the date in
         question: the American Stock Exchange, the New York Stock Exchange, the
         Nasdaq National Market or the Nasdaq SmallCap Market.

                  "Transaction Documents" means this Agreement, the Warrants and
         the Registration Rights Agreement and any other documents or agreements
         executed in connection with the transactions contemplated hereunder.

                  "Warrants"  means the Common Stock Purchase  Warrants,  in the
         form of  Exhibit  B,  delivered  to the  Purchasers  at the  Closing in
         accordance  with Section  2.2(a)(iii)  hereof,  which warrants shall be
         exercisable immediately upon issuance for a term of 5 years and have at
         an exercise  price equal to $2.98,  subject to  adjustment  as provided
         therein.

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

                                   ARTICLE II.
                                PURCHASE AND SALE

2.1  Closing.  On the Closing  Date,  each  Purchaser  shall  purchase  from the
Company,  severally and not jointly with the other  Purchasers,  and the Company
shall  issue and sell to each  Purchaser,  (a) a number of Shares  equal to such
Purchaser's  Subscription Amount divided by the Per Share Purchase Price and (b)
the  Warrants as  determined  pursuant  to Section  2.2(a)(iii).  The  aggregate

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Subscription  Amounts for the Shares sold  hereunder  shall be up to $5,000,000.
Upon  satisfaction of the conditions set forth in Section 2.3, the Closing shall
occur at the offices of FW or such other  location as the parties shall mutually
agree.

         2.2 Deliveries.

                  (a) On the Closing Date, the Company shall deliver or cause to
         be delivered to each Purchaser the following:

                           (i) this Agreement duly executed by the Company;

                           (ii) a copy of the  irrevocable  instructions  to the
                  Company's  transfer  agent  instructing  the transfer agent to
                  deliver,  on an expedited  basis,  a certificate  evidencing a
                  number of Shares equal to such Purchaser's Subscription Amount
                  divided by the Per Share  Purchase  Price,  registered  in the
                  name of such Purchaser;

                           (iii)  within 3 Trading  Days of the date  hereof,  a
                  Warrant, registered in the name of such Purchaser, pursuant to
                  which such Purchaser shall have the right to acquire up to the
                  number of shares of Common Stock equal to 30% of the Shares to
                  be issued to such Purchaser,

                           (iv) the Registration  Rights Agreement duly executed
                  by the Company;

                           (v) a lock-up  letter  from  Chuan Yih in the form of
                  Exhibit  D hereto  agreeing  not to sell any  shares of Common
                  Stock for a period  ending 60 days after the  Effective  Date;
                  and

                           (vi) a legal opinion of Company Counsel,  in the form
                  of Exhibit C attached hereto.

                  (b) On the Closing Date, each Purchaser shall deliver or cause
         to be delivered to the Company the following:

                           (i) this Agreement duly executed by such Purchaser;

                           (ii)  such  Purchaser's  Subscription  Amount by wire
                  transfer  to  the  account  as  specified  in  writing  by the
                  Company; and

                           (iii) the Registration Rights Agreement duly executed
                  by such Purchaser.

         2.3 Closing Conditions.

                  (a) The  obligations  of the Company  hereunder in  connection
         with the Closing are subject to the following conditions being met:

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                           (i) the accuracy in all material  respects  when made
                  and on the Closing Date of the  representations and warranties
                  of the Purchasers contained herein;

                           (ii) all obligations, covenants and agreements of the
                  Purchasers required to be performed at or prior to the Closing
                  Date shall have been performed; and

                           (iii) the delivery by the Purchasers of the items set
                  forth in Section 2.2(b) of this Agreement.

                  (b) The respective  obligations of the Purchasers hereunder in
         connection  with the Closing are  subject to the  following  conditions
         being met:

                           (i) the  accuracy  in all  material  respects  on the
                  Closing  Date of the  representations  and  warranties  of the
                  Company contained herein;

                           (ii) all obligations, covenants and agreements of the
                  Company  required to be  performed  at or prior to the Closing
                  Date shall have been performed;

                           (iii) the  delivery  by the  Company of the items set
                  forth in Section 2.2(a) of this Agreement;

                           (iv) there shall have been no Material Adverse Effect
                  with respect to the Company since the date hereof; and

                           (v) From the date hereof to the Closing Date, trading
                  in the  Common  Stock  shall  not have been  suspended  by the
                  Commission  (except for any  suspension  of trading of limited
                  duration agreed to by the Company,  which  suspension shall be
                  terminated  prior to the  Closing),  and, at any time prior to
                  the Closing Date, trading in securities  generally as reported
                  by Bloomberg  Financial  Markets shall not have been suspended
                  or limited,  or minimum prices shall not have been established
                  on securities whose trades are reported by such service, or on
                  any Trading Market,  nor shall a banking  moratorium have been
                  declared  either  by  the  United  States  or New  York  State
                  authorities   nor  shall  there  have  occurred  any  material
                  outbreak or escalation  of  hostilities  or other  national or
                  international  calamity of such magnitude in its effect on, or
                  any material adverse change in, any financial market which, in
                  each case, in the reasonable judgment of each Purchaser, makes
                  it  impracticable or inadvisable to purchase the Shares at the
                  Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 Representations and Warranties of the Company.  Except as set forth
under the corresponding section of the Disclosure Schedules

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which  Disclosure  Schedules  shall be deemed a part hereof,  the Company hereby
makes the  representations  and warranties set forth below to each Purchaser and
for each  representation  and warranty set forth below, such  representation and
warranty  shall include  reference to the British  Virgin Islands in addition to
any state or federal law mentioned therein:

                  (a) Subsidiaries.  All of the direct and indirect subsidiaries
         of the  Company  are set forth on Schedule  3.1(a).  The Company  owns,
         directly  or  indirectly,  all of the  capital  stock or  other  equity
         interests of each Subsidiary  free and clear of any Liens,  and all the
         issued and  outstanding  shares of capital stock of each Subsidiary are
         validly  issued and,  except as set forth in the Company's SEC Reports,
         are fully  paid,  non-assessable  and free of  preemptive  and  similar
         rights to subscribe for or purchase  securities.  If the Company has no
         subsidiaries,  then  references  in the  Transaction  Documents  to the
         Subsidiaries will be disregarded.

                  (b)  Organization and  Qualification.  Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly   existing  and  in  good  standing   under  the  laws  of  the
         jurisdiction of its incorporation or organization (as applicable), with
         the  requisite  power and authority to own and use its  properties  and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any  Subsidiary  is in  violation  or default of any of the
         provisions of its respective  certificate or articles of incorporation,
         bylaws  or  other  organizational  or  charter  documents.  Each of the
         Company and the  Subsidiaries is duly qualified to conduct business and
         is in good  standing as a foreign  corporation  or other entity in each
         jurisdiction in which the nature of the business  conducted or property
         owned  by it makes  such  qualification  necessary,  except  where  the
         failure to be so  qualified  or in good  standing,  as the case may be,
         could not have or  reasonably  be  expected to result in (i) a material
         adverse  effect on the  legality,  validity  or  enforceability  of any
         Transaction Document,  (ii) a material adverse effect on the results of
         operations,  assets, business or financial condition of the Company and
         the Subsidiaries,  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 any Transaction  Document (any of (i), (ii)
         or (iii),  a "Material  Adverse  Effect")  and no  Proceeding  has been
         instituted in any such jurisdiction revoking, limiting or curtailing or
         seeking  to  revoke,  limit or  curtail  such  power and  authority  or
         qualification.

                  (c) Authorization;  Enforcement. The Company has the requisite
         corporate  power and  authority  to enter  into and to  consummate  the
         transactions  contemplated  by each of the  Transaction  Documents  and
         otherwise to carry out its  obligations  thereunder.  The execution and
         delivery of each of the  Transaction  Documents  by the Company and the
         consummation by it of the transactions  contemplated  thereby have been
         duly authorized by all necessary  action on the part of the Company and
         no further  action is required by the Company in  connection  therewith
         other than in connection with the Required Approvals.  Each Transaction
         Document has been (or upon  delivery  will have been) duly  executed by
         the Company and, when  delivered in  accordance  with the terms hereof,

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         will  constitute  the  valid  and  binding  obligation  of the  Company
         enforceable against the Company in accordance with its terms except (i)
         as  limited  by  applicable  bankruptcy,  insolvency,   reorganization,
         moratorium and other laws of general application  affecting enforcement
         of creditors'  rights generally and (ii) as limited by laws relating to
         the availability of specific  performance,  injunctive  relief or other
         equitable remedies.

                  (d) No Conflicts.  The execution,  delivery and performance of
         the Transaction  Documents by the Company, the issuance and sale of the
         Shares and the  consummation  by the Company of the other  transactions
         contemplated  thereby do not and will not (i) conflict  with or violate
         any  provision of the  Company's  or any  Subsidiary's  certificate  or
         articles of  incorporation,  bylaws or other  organizational or charter
         documents,  or (ii) conflict with, or constitute a default (or an event
         that  with  notice  or lapse of time or both  would  become a  default)
         under, result in the creation of any Lien upon any of the properties or
         assets of the Company or any  Subsidiary,  or give to others any rights
         of  termination,  amendment,  acceleration  or  cancellation  (with  or
         without  notice,  lapse  of time or both)  of,  any  agreement,  credit
         facility,  debt or other instrument (evidencing a Company or Subsidiary
         debt or otherwise) or other  understanding  to which the Company or any
         Subsidiary  is a party or by which any property or asset of the Company
         or any  Subsidiary  is  bound or  affected,  or  (iii)  subject  to the
         Required Approvals,  conflict with or result in a violation of any law,
         rule,  regulation,   order,  judgment,   injunction,  decree  or  other
         restriction of any court or governmental authority to which the Company
         or a Subsidiary is subject  (including  applicable  securities laws and
         regulations),  or by which any  property  or asset of the  Company or a
         Subsidiary is bound or affected;  except in the case of each of clauses
         (ii) and (iii), such as could not reasonably be expected to result in a
         Material Adverse Effect.

                  (e)  Filings,  Consents  and  Approvals.  The  Company  is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or  registration  with,  any court or
         other federal,  state, local or other  governmental  authority or other
         Person in connection  with the execution,  delivery and  performance by
         the  Company  of the  Transaction  Documents,  other  than (i)  filings
         required  pursuant  to Section 4.4 of this  Agreement,  (ii) the filing
         with the Commission of the Registration Statement, (iii) application(s)
         to each  applicable  Trading  Market for the  listing of the Shares and
         Warrant  Shares for  trading  thereon  in the time and manner  required
         thereby,  and (iv) the  filing of Form D with the  Commission  and such
         filings as are required to be made under  applicable  state  securities
         laws (collectively, the "Required Approvals").

                  (f)  Issuance of the  Securities.  The Shares and Warrants are
         duly  authorized  and, when issued and paid for in accordance  with the
         Transaction Documents,  will be duly and validly issued, fully paid and
         nonassessable, free and clear of all Liens imposed by the Company other
         than   restrictions  on  transfer   provided  for  in  the  Transaction
         Documents. The Warrant Shares, when issued in accordance with the terms
         of the Transaction  Documents,  will be validly issued,  fully paid and

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         nonassessable,  free and clear of all Liens imposed by the Company. The
         Company has reserved from its duly authorized capital stock the maximum
         number of shares of Common Stock  issuable  pursuant to this  Agreement
         and the Warrants.

                  (g)  Capitalization.  The  capitalization of the Company is as
         described in the Company's most recent  periodic  report filed with the
         Commission.  The Company  has not issued any  capital  stock since such
         filing other than  pursuant to the exercise of employee  stock  options
         under the  Company's  stock  option  plans,  the  issuance of shares of
         Common  Stock to employees  pursuant to the  Company's  employee  stock
         purchase plan and pursuant to the conversion or exercise of outstanding
         Common  Stock  Equivalents.  No Person has any right of first  refusal,
         preemptive  right,  right of  participation,  or any  similar  right to
         participate  in  the  transactions   contemplated  by  the  Transaction
         Documents.  Except  as a  result  of  the  purchase  and  sale  of  the
         Securities and except  pursuant to the Company's stock or options plans
         for employees,  officers,  directors,  consultants  and advisors of the
         Company, there are no outstanding options,  warrants,  script rights to
         subscribe to, calls or commitments of any character whatsoever relating
         to,  or  securities,   rights  or  obligations   convertible   into  or
         exchangeable  for, or giving any Person any right to  subscribe  for or
         acquire,  any  shares  of  Common  Stock,  or  contracts,  commitments,
         understandings  or  arrangements by which the Company or any Subsidiary
         is or may become bound to issue  additional  shares of Common Stock, or
         securities or rights  convertible or exchangeable into shares of Common
         Stock.  The  issue and sale of the  Securities  will not  obligate  the
         Company  to issue  shares of Common  Stock or other  securities  to any
         Person  (other than the  Purchasers)  and will not result in a right of
         any holder of Company  securities to adjust the  exercise,  conversion,
         exchange or reset price under such  securities.  All of the outstanding
         shares of capital stock of the Company are validly  issued,  fully paid
         and nonassessable,  have been issued in compliance with all federal and
         state securities  laws, and none of such outstanding  shares was issued
         in violation of any  preemptive  rights or similar  rights to subscribe
         for or purchase securities. No further approval or authorization of any
         stockholder,  the  Board of  Directors  of the  Company  or  others  is
         required for the  issuance and sale of the Shares.  Except as disclosed
         in the  SEC  Reports,  there  are no  stockholders  agreements,  voting
         agreements  or other similar  agreements  with respect to the Company's
         capital  stock to which the Company is a party or, to the  knowledge of
         the Company, between or among any of the Company's stockholders.

                  (h) SEC Reports;  Financial Statements.  The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years  preceding the date hereof (or such shorter period as the
         Company  was  required  by law to file such  material)  (the  foregoing
         materials,  including the exhibits thereto, being collectively referred
         to herein as the "SEC  Reports")  on a timely  basis or has  received a
         valid  extension  of such  time of  filing  and has  filed any such SEC
         Reports  prior to the  expiration  of any such  extension.  As of their
         respective  dates,  the SEC Reports  complied in all material  respects
         with the  requirements  of the  Securities Act and the Exchange Act and

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         the rules and regulations of the Commission promulgated thereunder, and
         none of the SEC Reports, when filed,  contained any untrue statement of
         a material  fact or omitted to state a  material  fact  required  to be
         stated therein or necessary in order to make the statements therein, in
         light of the circumstances  under which they were made, not misleading.
         The  financial  statements  of the Company  included in the SEC Reports
         comply in all material respects with applicable accounting requirements
         and the rules and regulations of the Commission with respect thereto as
         in effect at the time of filing.

                  (i)  Material  Changes.  Since the date of the latest  audited
         financial  statements  included  within  the  SEC  Reports,  except  as
         specifically disclosed in the SEC Reports, (i) there has been no event,
         occurrence  or  development  that has had or that could  reasonably  be
         expected to result in a Material  Adverse Effect,  (ii) the Company has
         not incurred any liabilities  (contingent or otherwise)  other than (A)
         trade payables and accrued expenses  incurred in the ordinary course of
         business consistent with past practice and (B) liabilities not required
         to be reflected in the Company's financial  statements pursuant to GAAP
         or required to be disclosed in filings made with the Commission,  (iii)
         the Company has not altered its method of accounting,  (iv) the Company
         has not declared or made any dividend or  distribution of cash or other
         property  to its  stockholders  or  purchased,  redeemed  or  made  any
         agreements  to purchase  or redeem any shares of its capital  stock and
         (v) the Company has not issued any equity  securities  to any  officer,
         director or Affiliate, except pursuant to existing Company stock option
         plans.  The Company does not have  pending  before the  Commission  any
         request for confidential treatment of information.

                  (j) Litigation.  There is no action, suit, inquiry,  notice of
         violation,  proceeding or investigation pending or, to the knowledge of
         the  Company,   threatened  against  or  affecting  the  Company,   any
         Subsidiary  or any of  their  respective  properties  before  or by any
         court, arbitrator,  governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively,  an
         "Action")  which (i)  adversely  affects or  challenges  the  legality,
         validity or enforceability  of any of the Transaction  Documents or the
         Securities  or (ii)  could,  if  there  were an  unfavorable  decision,
         reasonably be expected to result in a Material Adverse Effect.  Neither
         the Company nor any Subsidiary, nor any director or officer thereof, is
         or has been the subject of any Action involving a claim of violation of
         or  liability  under  federal  or state  securities  laws or a claim of
         breach of fiduciary  duty.  There has not been, and to the knowledge of
         the Company, there is not pending or contemplated, any investigation by
         the Commission  involving the Company or any current or former director
         or officer of the Company. The Commission has not issued any stop order
         or  other  order  suspending  the  effectiveness  of  any  registration
         statement filed by the Company or any Subsidiary under the Exchange Act
         or the Securities Act.

                                       10
<PAGE>

                  (k) Labor  Relations.  No material labor dispute exists or, to
         the  knowledge of the Company,  is imminent  with respect to any of the
         employees of the Company  which could  reasonably be expected to result
         in a Material Adverse Effect.

                  (l) Compliance.  Neither the Company nor any Subsidiary (i) is
         in default under or in violation of (and no event has occurred that has
         not been  waived  that,  with  notice  or lapse of time or both,  would
         result in a default by the Company or any  Subsidiary  under),  nor has
         the Company or any Subsidiary  received notice of a claim that it is in
         default  under or that it is in violation  of, any  indenture,  loan or
         credit  agreement or any other agreement or instrument to which it is a
         party or by which it or any of its  properties is bound (whether or not
         such default or violation has been waived), (ii) is in violation of any
         order of any court, arbitrator or governmental body, or (iii) is or has
         been  in  violation  of  any  statute,   rule  or   regulation  of  any
         governmental  authority,  including  without  limitation  all  foreign,
         federal, state and local laws applicable to its business except in each
         case as could not have a Material Adverse Effect.

                  (m)  Regulatory  Permits.  The  Company  and the  Subsidiaries
         possess all  certificates,  authorizations  and  permits  issued by the
         appropriate  federal,  state, local or foreign  regulatory  authorities
         necessary to conduct  their  respective  businesses as described in the
         SEC Reports, except where the failure to possess such permits could not
         have or reasonably be expected to result in a Material  Adverse  Effect
         ("Material  Permits"),  and neither the Company nor any  Subsidiary has
         received  any  notice of  proceedings  relating  to the  revocation  or
         modification of any Material Permit.

                  (n) Title to Assets.  The  Company and the  Subsidiaries  have
         good and  marketable  title in fee simple to all real property owned by
         them  that  is  material  to  the  business  of  the  Company  and  the
         Subsidiaries  and good and  marketable  title in all personal  property
         owned by them that is material  to the  business of the Company and the
         Subsidiaries,  in each  case free and clear of all  Liens,  except  for
         Liens as do not materially affect the value of such property and do not
         materially  interfere with the use made and proposed to be made of such
         property by the Company and the  Subsidiaries and Liens for the payment
         of  federal,  state or other  taxes,  the  payment  of which is neither
         delinquent  nor subject to penalties.  Any real property and facilities
         held under lease by the Company and the  Subsidiaries  are held by them
         under valid, subsisting and enforceable leases of which the Company and
         the Subsidiaries are in material compliance.

                  (o) Patents and Trademarks.  The Company and the  Subsidiaries
         have,  or  have  rights  to  use,  all  patents,  patent  applications,
         trademarks,   trademark  applications,   service  marks,  trade  names,
         copyrights, licenses and other similar rights necessary or material for
         use in connection with their respective  businesses as described in the
         SEC  Reports  and which the  failure  to so have  could  reasonably  be
         expected  to  have  a  Material  Adverse  Effect   (collectively,   the
         "Intellectual Property Rights"). Neither the Company nor any Subsidiary
         has received a written  notice that the  Intellectual  Property  Rights

                                       11
<PAGE>

         used by the Company or any  Subsidiary  violates or infringes  upon the
         rights  of any  Person.  To the  knowledge  of the  Company,  all  such
         Intellectual  Property  Rights are enforceable and there is no existing
         infringement  by  another  Person of any of the  Intellectual  Property
         Rights.

                  (p) Insurance. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are  customary in the  businesses in which
         the Company and the Subsidiaries are engaged.  To the best of Company's
         knowledge,  such  insurance  contracts  and  policies  are accurate and
         complete.

                  (q) Transactions With Affiliates and Employees.  Except as set
         forth in the SEC  Reports,  none of the  officers or  directors  of the
         Company and, to the knowledge of the Company,  none of the employees of
         the Company is presently a party to any transaction with the Company or
         any  Subsidiary  (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 entity in which any officer, director, or
         any  such  employee  has a  substantial  interest  or  is  an  officer,
         director,  trustee or partner,  in each case in excess of $60,000 other
         than  (i) for  payment  of  salary  or  consulting  fees  for  services
         rendered,  (ii)  reimbursement  for expenses  incurred on behalf of the
         Company and (iii) for other employee  benefits,  including stock option
         agreements under any stock option plan of the Company.

                  (r) Sarbanes-Oxley;  Internal Accounting Controls. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are  applicable to it as of the Closing Date. The Company
         and the 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 GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization,  and
         (iv) the  recorded  accountability  for  assets  is  compared  with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e) (to the extent such rules are applicable to the Company)) for
         the Company and designed  such  disclosure  controls and  procedures to
         ensure that material information relating to the Company, including its
         subsidiaries, is made known to the certifying officers by others within
         those entities,  particularly  during the period in which the Company's
         most recently filed periodic report under the Exchange Act, as the case
         may be, is being  prepared.  The  Company's  certifying  officers  have
         evaluated the effectiveness of the Company's controls and procedures as
         of the  date  prior  to the  filing  date of the  most  recently  filed

                                       12
<PAGE>

         periodic  report  under the Exchange  Act (such date,  the  "Evaluation
         Date").  The Company  presented  in its most  recently  filed  periodic
         report  under  the  Exchange  Act  the  conclusions  of the  certifying
         officers  about  the  effectiveness  of  the  disclosure  controls  and
         procedures based on their  evaluations as of the Evaluation Date. Since
         the  Evaluation  Date,  there have been no  significant  changes in the
         Company's  internal controls (as such term is defined in Item 307(b) of
         Regulation S-K under the Exchange Act) or, to the Company's  knowledge,
         in other factors that could significantly affect the Company's internal
         controls.

                  (s) Certain Fees. No brokerage or finder's fees or commissions
         are or will be payable by the Company to any broker,  financial advisor
         or consultant,  finder,  placement agent,  investment  banker,  bank or
         other  Person with  respect to the  transactions  contemplated  by this
         Agreement.  The Purchasers shall have no obligation with respect to any
         fees or with  respect  to any  claims  made by or on  behalf  of  other
         Persons for fees of a type contemplated in this Section that may be due
         in connection with the transactions contemplated by this Agreement.

                  (t)  Private   Placement.   Assuming   the   accuracy  of  the
         Purchasers' representations and warranties set forth in Section 3.2, no
         registration  under the  Securities  Act is required  for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby.  The issuance  and sale of the  Securities  hereunder  does not
         contravene the rules and regulations of the Trading Market.

                  (u)  Investment  Company.  The  Company is not,  and is not an
         Affiliate of, and immediately  after receipt of payment for the Shares,
         will not be or be an Affiliate of, an "investment  company"  within the
         meaning of the Investment Company Act of 1940, as amended.  The Company
         shall  conduct  its  business  in a manner  so that it will not  become
         subject to the Investment Company Act.

                  (v) Registration  Rights. No Person has any right to cause the
         Company  to effect the  registration  under the  Securities  Act of any
         securities of the Company.

                  (w) Listing and Maintenance Requirements. The Company's Common
         Stock is registered  pursuant to Section 12(g) of the Exchange Act, and
         the Company has taken no action  designed to, or which to its knowledge
         is likely to have the effect of,  terminating  the  registration of the
         Common Stock under the  Exchange  Act nor has the Company  received any
         notification  that the  Commission is  contemplating  terminating  such
         registration.  The Company has not, in the 12 months preceding the date
         hereof,  received  notice from any  Trading  Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance  requirements of such
         Trading  Market.  The Company is, and has no reason to believe  that it
         will not in the  foreseeable  future continue to be, in compliance with
         all such listing and maintenance requirements.

                                       13
<PAGE>

                  (x) Application of Takeover  Protections.  The Company and its
         Board of Directors have taken all necessary action, if any, in order to
         render   inapplicable   any   control   share   acquisition,   business
         combination,  poison pill  (including any  distribution  under a rights
         agreement) or other similar anti-takeover provision under the Company's
         Certificate of Incorporation (or similar charter documents) or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers  as a result of the  Purchasers  and the Company  fulfilling
         their  obligations  or  exercising  their rights under the  Transaction
         Documents,  including without  limitation the Company's issuance of the
         Securities and the Purchasers' ownership of the Securities.

                  (y) Disclosure. The Company confirms that, neither the Company
         nor any other  Person  acting on its  behalf  has  provided  any of the
         Purchasers  or  their  agents  or  counsel  with any  information  that
         constitutes  or might  reasonably  be  deemed to  constitute  material,
         non-public  information.  The Company understands and confirms that the
         Purchasers will rely on the foregoing  representations and covenants in
         effecting  transactions  in securities of the Company.  All  disclosure
         provided to the Purchasers  regarding the Company, its business and the
         transactions contemplated hereby, including the Disclosure Schedules to
         this  Agreement,  furnished by or on behalf of the Company with respect
         to the representations and warranties made herein are, to the Company's
         knowledge,  true and correct with respect to such  representations  and
         warranties and, to the Company's  knowledge,  do not contain any untrue
         statement  of a  material  fact or  omit to  state  any  material  fact
         necessary in order to make the statements made therein, in light of the
         circumstances  under which they were made, not misleading.  The Company
         acknowledges  and  agrees  that no  Purchaser  makes  or has  made  any
         representations   or  warranties  with  respect  to  the   transactions
         contemplated  hereby other than those specifically set forth in Section
         3.2 hereof.

                  (z) No  Integrated  Offering.  Assuming  the  accuracy  of the
         Purchasers'  representations  and  warranties set forth in Section 3.2,
         neither the Company,  nor any of its affiliates,  nor any Person acting
         on its or their behalf has, directly or indirectly,  made any offers or
         sales of any  security  or  solicited  any offers to buy any  security,
         under circumstances that would cause this offering of the Securities to
         be integrated  with prior  offerings by the Company for purposes of the
         Securities  Act  or any  applicable  shareholder  approval  provisions,
         including,  without limitation,  under the rules and regulations of any
         exchange or automated  quotation  system on which any of the securities
         of the Company are listed or designated.

                  (aa) Solvency. Based on the financial condition of the Company
         as of the  Closing  Date  after  giving  effect to the  receipt  by the
         Company of the proceeds from the sale of the Securities hereunder,  (i)
         the Company's fair saleable value of its assets exceeds the amount that
         will be required to be paid on or in respect of the Company's  existing
         debts and other liabilities (including known contingent liabilities) as
         they mature;  (ii) the Company's assets do not constitute  unreasonably

                                       14
<PAGE>

         small  capital to carry on its business for the current  fiscal year as
         now  conducted  and as proposed to be conducted  including  its capital
         needs taking into account the particular  capital  requirements  of the
         business conducted by the Company,  and projected capital  requirements
         and capital  availability  thereof;  and (iii) the current cash flow of
         the Company, together with the proceeds the Company would receive, were
         it to  liquidate  all of its  assets,  after  taking  into  account all
         anticipated uses of the cash, would be sufficient to pay all amounts on
         or in respect of its debt when such  amounts  are  required to be paid.
         The Company  does not intend to incur  debts  beyond its ability to pay
         such debts as they mature  (taking  into account the timing and amounts
         of cash to be payable on or in respect of its debt).

                  (bb) Taxes. Except for matters that would not, individually or
         in the  aggregate,  have or  reasonably  be  expected  to  result  in a
         Material Adverse Effect,  the Company and each Subsidiary has filed all
         necessary  federal,  state and foreign income and franchise tax returns
         and has paid or accrued all taxes shown as due thereon, and the Company
         has no  knowledge  of a tax  deficiency  which  has  been  asserted  or
         threatened against the Company or any Subsidiary.

                  (cc) General Solicitation.  Neither the Company nor any person
         acting on behalf of the  Company  has offered or sold any of the Shares
         by any form of general solicitation or general advertising. The Company
         has  offered  the Shares for sale only to the  Purchasers  and  certain
         other  "accredited  investors" within the meaning of Rule 501 under the
         Securities Act.

                  (dd) Accountants.  The Company's  accountants are set forth on
         Schedule  3.1(dd)  of  the  Disclosure   Schedule.   To  the  Company's
         knowledge, such accountants, who the Company expects will express their
         opinion with respect to the financial  statements to be included in the
         Company's  Annual Report on Form 20-K for the year ending  December 31,
         2004, are independent accountants as required by the Securities Act.

                  (ee) Acknowledgment  Regarding Purchasers' Purchase of Shares.
         The  Company  acknowledges  and agrees that each of the  Purchasers  is
         acting solely in the capacity of an arm's length purchaser with respect
         to the Transaction Documents and the transactions  contemplated hereby.
         The  Company  further  acknowledges  that no  Purchaser  is acting as a
         financial  advisor  or  fiduciary  of the  Company  (or in any  similar
         capacity)  with  respect  to  this   Agreement  and  the   transactions
         contemplated  hereby and any advice  given by any  Purchaser  or any of
         their  respective  representatives  or agents in  connection  with this
         Agreement and the transactions contemplated hereby is merely incidental
         to  the  Purchasers'  purchase  of  the  Shares.  The  Company  further
         represents to each Purchaser that the Company's  decision to enter into
         this Agreement has been based solely on the  independent  evaluation of
         the   transactions   contemplated   hereby  by  the   Company  and  its
         representatives.

                                       15
<PAGE>

                  (ff) Form F-3 Eligibility. The Company is eligible to register
         the  resale  of its  Common  Stock  by the  Purchasers  under  Form F-3
         promulgated under the Securities Act.

         3.2  Representations  and Warranties of the Purchasers.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                  (a) Organization;  Authority. Such Purchaser is an entity duly
         organized,  validly existing and in good standing under the laws of the
         jurisdiction  of  its  organization  with  full  right,   corporate  or
         partnership  power and  authority to enter into and to  consummate  the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its  obligations  thereunder.  The  execution,  delivery  and
         performance by such Purchaser of the transactions  contemplated by this
         Agreement  have been duly  authorized  by all  necessary  corporate  or
         similar action on the part of such Purchaser. Each Transaction Document
         to which it is a party has been duly  executed by such  Purchaser,  and
         when delivered by such  Purchaser in accordance  with the terms hereof,
         will  constitute  the  valid and  legally  binding  obligation  of such
         Purchaser,  enforceable against it in accordance with its terms, except
         (i)  as  limited  by  general   equitable   principles  and  applicable
         bankruptcy,  insolvency,  reorganization,  moratorium and other laws of
         general   application   affecting   enforcement  of  creditors'  rights
         generally,  (ii) as limited by laws  relating  to the  availability  of
         specific performance, injunctive relief or other equitable remedies and
         (iii) insofar as  indemnification  and  contribution  provisions may be
         limited by applicable law.

                  (b) Investment  Intent.  Such Purchaser  understands  that the
         Securities are  "restricted  securities"  and have not been  registered
         under the Securities Act or any applicable  state securities law and is
         acquiring the  Securities as principal for its own account and not with
         a view to or for  distributing or reselling such Securities or any part
         thereof,   has  no  present  intention  of  distributing  any  of  such
         Securities  and has no  arrangement  or  understanding  with any  other
         persons   regarding  the   distribution   of  such   Securities   (this
         representation and warranty not limiting such Purchaser's right to sell
         the Securities  pursuant to the Registration  Statement or otherwise in
         compliance with applicable  federal and state  securities  laws).  Such
         Purchaser is acquiring the Securities  hereunder in the ordinary course
         of its  business.  Such  Purchaser  does  not  have  any  agreement  or
         understanding,  directly or  indirectly,  with any Person to distribute
         any of the Securities.

                  (c) Purchaser  Status.  At the time such Purchaser was offered
         the Securities,  it was, and at the date hereof it is, and on each date
         on  which  it  exercises  any  Warrants,  it  will  be  either:  (i) an
         "accredited  investor" as defined in Rule  501(a)(1),  (a)(2),  (a)(3),
         (a)(7)  or  (a)(8)  under  the  Securities  Act or  (ii)  a  "qualified
         institutional  buyer" as defined in Rule 144A(a)  under the  Securities
         Act. Such Purchaser is not required to be registered as a broker-dealer
         under Section 15 of the Exchange Act.

                                       16
<PAGE>

                  (d)  Experience  of Such  Purchaser.  Such  Purchaser has such
         knowledge,  sophistication  and  experience  in business and  financial
         matters so as to be capable of  evaluating  the merits and risks of the
         prospective  investment  in the  Securities,  and has so evaluated  the
         merits and risks of such investment. Such Purchaser is able to bear the
         economic risk of an investment  in the  Securities  and, at the present
         time, is able to afford a complete loss of such investment.

                  (e) General Solicitation. Such Purchaser is not purchasing the
         Securities as a result of any advertisement,  article,  notice or other
         communication  regarding  the  Securities  published in any  newspaper,
         magazine or similar  media or  broadcast  over  television  or radio or
         presented at any seminar or any other general  solicitation  or general
         advertisement.

                  (f) Recent Trading of Shares.  Such Purchaser  represents that
         from July 6, 2004 through the Closing  Date,  neither it nor any Person
         acting  on  behalf  of or  pursuant  to  any  understanding  with  such
         Purchaser  have made any  purchases  or sales of, or granted any option
         for the  purchase  or sale of or  entered  into any  hedging or similar
         transaction with the same economic effect as a purchase or sale, of the
         Common Stock.

                  (g) SEC Reports.  Each  Purchaser  has reviewed the  Company's
         reports filed under the Securities Act and the Exchange Act,  including
         pursuant  to  Section  13(a) or 15(d)  thereof,  and has been  provided
         opportunity  by the  Company to  request  such  additional  information
         requested by each  Purchaser in connection  with their  purchase of the
         Securities.

                  (h) Reporting Requirements. Each Purchaser understands, and is
         purchasing the Securities  with full  knowledge,  that the Company is a
         foreign  private  issuer  within  the  meaning  of the rules  under the
         Exchange  Act. As such,  the Company  exempt  from  certain  provisions
         applicable to United States public companies,  including: (i) the rules
         under the  Exchange Act  requiring  the filing with the  Commission  of
         quarterly reports on Form 10-Q or current reports on Form 6-K; (ii) the
         provisions  of  Regulation  FD intended to prevent  issuers from making
         selective  disclosures of material  information;  (iii) the sections of
         the Exchange Act regulating the  solicitation  of proxies,  consents or
         authorizations  in respect of a security  registered under the Exchange
         Act; and (iv) the sections of the  Exchange Act  requiring  insiders to
         file public reports of their stock ownership and trading activities and
         establishing   insider   liability   for  profits   realized  from  any
         "short-swing"  trading  transaction.  Because of these exemptions,  the
         Company's shareholders are not provided with the same information which
         is generally  available about public companies  organized in the United
         States.

                  (i)  BVI  Corporation.  Each  Purchaser  understands,  and  is
         purchasing  the  Securities  with  full  knowledge,   that,  as  a  BVI
         corporation,  the  Company's  directors  have the power to take certain
         actions without  shareholder  approval which would require  shareholder
         approval  under  the  laws of most  United  States  jurisdictions.  The
         directors  of a BVI  corporation,  subject  in  certain  cases to court

                                       17
<PAGE>

         approval   but   without   shareholder   approval,   may   implement  a
         reorganization,  merger  or  consolidation,  the  sale  of any  assets,
         property, part of the business, or securities of the corporation.

                  (j)  Certain  Trading  Activities.   Such  Purchaser  has  not
         directly  or  indirectly,  nor has any  Person  acting  on behalf of or
         pursuant  to any  understanding  with such  Purchaser,  engaged  in any
         transactions  in the  securities  of the  Company  (including,  without
         limitations,  any Short Sales involving the Company's securities) since
         the time that such Purchaser was first contacted by the Company or Roth
         Capital  Partners,  LLC regarding this  investment in the Company.  For
         purposes of this Section,  "Short Sales" include,  without  limitation,
         all  "short  sales" as  defined  in Rule 3b-3 of the  Exchange  Act and
         include all types of direct and indirect  stock  pledges,  forward sale
         contracts,  options,  puts,  calls,  short  sales,  swaps  and  similar
         arrangements  (including on a total return basis),  and sales and other
         transactions through non-US broker dealers or foreign regulated brokers
         having the effect of hedging the  securities or  investment  made under
         this Agreement. Such Purchaser covenants that neither it nor any Person
         acting on its  behalf or  pursuant  to any  understanding  with it will
         engage in any transactions in the securities of the Company  (including
         Short Sales) prior to the time that the  transactions  contemplated  by
         this Agreement are publicly disclosed.

         The Company  acknowledges  and agrees that each Purchaser does not make
or  has  not  made  any  representations  or  warranties  with  respect  to  the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 Transfer Restrictions.

                  (a) The Securities may only be disposed of in compliance  with
         state and federal  securities  laws (and any comparable  jurisdictional
         law for the British Virgin Islands). In connection with any transfer of
         Securities other than pursuant to an effective  registration  statement
         or Rule 144, to the  Company or to an  Affiliate  of a Purchaser  or in
         connection with a pledge as contemplated in Section 4.1(b), the Company
         may require the transferor thereof to provide to the Company an opinion
         of counsel selected by the transferor and reasonably  acceptable to the
         Company,  the form and  substance of which  opinion shall be reasonably
         satisfactory to the Company,  to the effect that such transfer does not
         require   registration  of  such   transferred   Securities  under  the
         Securities Act. As a condition of transfer,  any such transferee  shall
         agree in writing to be bound by the terms of this  Agreement  and shall
         have  the  rights  of  a  Purchaser   under  this   Agreement  and  the
         Registration Rights Agreement.

                  (b) The  Purchasers  agree  to the  imprinting,  so long as is
         required by this Section  4.1(b),  of a legend on any of the Securities
         in the following form:

                                       18
<PAGE>

                  THESE  SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
                  AND EXCHANGE  COMMISSION OR THE  SECURITIES  COMMISSION OF ANY
                  STATE IN RELIANCE UPON AN EXEMPTION  FROM  REGISTRATION  UNDER
                  THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
                  AND,  ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
                  TO AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES
                  ACT  OR  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
                  TRANSACTION NOT SUBJECT TO, THE  REGISTRATION  REQUIREMENTS OF
                  THE SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
                  SECURITIES  LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
                  THE  TRANSFEROR  REASONABLY  ACCEPTABLE TO THE COMPANY TO SUCH
                  EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY  ACCEPTABLE
                  TO THE COMPANY.  THESE SECURITIES MAY BE PLEDGED IN CONNECTION
                  WITH  A  BONA   FIDE   MARGIN   ACCOUNT   WITH  A   REGISTERED
                  BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL  INSTITUTION THAT
                  IS AN  "ACCREDITED  INVESTOR"  AS DEFINED IN RULE 501(a) UNDER
                  THE SECURITIES ACT.

                  The Company  acknowledges and agrees that a Purchaser may from
         time to time pledge  pursuant to a bona fide  margin  agreement  with a
         registered broker-dealer or grant a security interest in some or all of
         the  Securities  to a  financial  institution  that  is an  "accredited
         investor"  as defined in Rule 501(a) under the  Securities  Act and who
         agrees  to be  bound  by the  provisions  of  this  Agreement  and  the
         Registration  Rights Agreement and, if required under the terms of such
         arrangement,  such Purchaser may transfer pledged or secured Securities
         to the pledgees or secured parties. Such a pledge or transfer would not
         be subject to approval  of the  Company  and no legal  opinion of legal
         counsel of the pledgee,  secured  party or pledgor shall be required in
         connection  therewith.  Further,  no notice  shall be  required of such
         pledge.  At the  appropriate  Purchaser's  expense,  the  Company  will
         execute  and  deliver  such  reasonable  documentation  as a pledgee or
         secured party of Securities may reasonably request in connection with a
         pledge or transfer of the Securities,  including, if the Securities are
         subject to registration  pursuant to the Registration Rights Agreement,
         the preparation and filing of any required prospectus  supplement under
         Rule 424(b)(3) under the Securities Act or other  applicable  provision
         of the  Securities  Act to  appropriately  amend  the  list of  Selling
         Stockholders thereunder.

                  (c)  Certificates  evidencing  the Shares and  Warrant  Shares
         shall not contain any legend (including the legend set forth in Section
         4.1(b)), (i) while a registration statement (including the Registration
         Statement)  covering the resale of such security is effective under the
         Securities  Act, or (ii)  following  any sale of such Shares or Warrant
         Shares  pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
         are eligible for sale under Rule 144(k),  or (iv) if such legend is not

                                       19
<PAGE>

         required under applicable requirements of the Securities Act (including
         judicial  interpretations and pronouncements issued by the Staff of the
         Commission).  If all or any portion of a Warrant is exercised at a time
         when there is an effective  registration  statement to cover the resale
         of the Warrant Shares,  such Warrant Shares shall be issued free of all
         legends.  The Company  agrees that  following the Effective  Date or at
         such time as such  legend  is no longer  required  under  this  Section
         4.1(c), it will, no later than five Trading Days following the delivery
         by a Purchaser  to the  Company or the  Company's  transfer  agent of a
         certificate  representing Shares or Warrant Shares, as the case may be,
         issued  with a  restrictive  legend  (such date,  the  "Legend  Removal
         Date"),   deliver  or  cause  to  be  delivered  to  such  Purchaser  a
         certificate   representing  such  Securities  that  is  free  from  all
         restrictive and other legends. The Company may not make any notation on
         its records or give  instructions  to any transfer agent of the Company
         that enlarge the restrictions on transfer set forth in this Section.

                  (d) In addition to such Purchaser's other available  remedies,
         the Company shall pay to a Purchaser,  in cash,  as partial  liquidated
         damages  and not as a  penalty,  for each  $1,000 of Shares or  Warrant
         Shares (based on the Closing Price of the Common Stock on the date such
         Securities  are submitted to the Company's  transfer  agent) subject to
         Section 4.1(c),  $10 per Trading Day for each Trading Day commencing on
         the  3rd  Trading   following  the  Legend   Removal  Date  until  such
         certificate is delivered.  Nothing herein shall limit such  Purchaser's
         right to pursue  actual  damages for the  Company's  failure to deliver
         certificates representing any Securities as required by the Transaction
         Documents,  and such  Purchaser  shall  have the  right to  pursue  all
         remedies  available  to  it at  law  or in  equity  including,  without
         limitation, a decree of specific performance and/or injunctive relief.

                  (e) Each  Purchaser,  severally and not jointly with the other
         Purchasers,  agrees  that the  removal of the  restrictive  legend from
         certificates  representing  Securities as set forth in this Section 4.1
         is predicated upon the Company's  reliance that the Purchaser will sell
         any Securities pursuant to either the registration  requirements of the
         Securities   Act,   including  any   applicable   prospectus   delivery
         requirements, or an exemption therefrom.

         4.2  Furnishing  of   Information.   As  long  as  any  Purchaser  owns
Securities,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports
required  to be filed by the  Company  after  the date  hereof  pursuant  to the
Exchange  Act  applicable  to foreign  issuers.  As long as any  Purchaser  owns
Securities,  if the  Company is not  required  to file  reports  pursuant to the
Exchange  Act, it will prepare and furnish to the  Purchasers  and make publicly
available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further  covenants
that it will take such further action as any holder of Securities may reasonably
request,  all to the extent  required from time to time to enable such Person to
sell such Securities  without  registration  under the Securities Act within the
limitation of the exemptions provided by Rule 144.

                                       20
<PAGE>

         4.3 Integration.  The Company shall not sell, offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities  Act of the sale of the Securities to the Purchasers or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and  regulations  of any Trading  Market such that it would require  shareholder
approval  prior to the  closing of such  other  transaction  unless  shareholder
approval is obtained before the closing of such subsequent transaction.

         4.4 Securities Laws Disclosure;  Publicity.  The Company shall, by 8:30
a.m.  Eastern time on the Trading Day following  the date hereof,  issue a press
release or file a Current  Report on Form 6-K,  disclosing the material terms of
the  transactions  contemplated  hereby.  The Company and each  Purchaser  shall
consult with each other in issuing any other press  releases with respect to the
transactions  contemplated  hereby,  and neither  the Company nor any  Purchaser
shall issue any such press release or otherwise  make any such public  statement
without the prior  consent of the Company,  with respect to any press release of
any Purchaser,  or without the prior consent of each Purchaser,  with respect to
any press  release of the  Company,  which  consent  shall not  unreasonably  be
withheld,  except if such  disclosure  is  required  by law,  in which  case the
disclosing  party shall  promptly  provide the other party with prior  notice of
such public  statement or  communication.  Notwithstanding  the  foregoing,  the
Company shall not publicly  disclose the name of any  Purchaser,  or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market,  without the prior written consent of such Purchaser,  except
(i) as required by federal  securities law in connection  with the  registration
statement  contemplated  by the  Registration  Rights  Agreement and (ii) to the
extent such  disclosure  is required by law or Trading  Market  regulations,  in
which case the Company  shall provide the  Purchasers  with prior notice of such
disclosure permitted under subclause (i) or (ii).

         4.5  Shareholder  Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring  Person" under any  shareholder  rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the  provisions of any such plan or  arrangement,  by
virtue of  receiving  Securities  under the  Transaction  Documents or under any
other  agreement  between  the  Company and the  Purchasers.  The Company  shall
conduct  its  business  in a manner so that it will not  become  subject  to the
Investment Company Act.

         4.6  Non-Public  Information.  The  Company  covenants  and agrees that
neither it nor any other Person  acting on its behalf will provide any Purchaser
or its  agents  or  counsel  with  any  information  that the  Company  believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be  relying  on the  foregoing  representations  in  effecting  transactions  in
securities of the Company.

                                       21
<PAGE>

         4.7 Use of  Proceeds.  Except as set  forth on  Schedule  4.7  attached
hereto,  the Company shall use the net proceeds from the sale of the  Securities
hereunder  for working  capital  purposes  and not for the  satisfaction  of any
portion of the  Company's  debt  (other  than  payment of trade  payables in the
ordinary course of the Company's  business and prior  practices),  to redeem any
Company  equity or  equity-equivalent  securities  or to settle any  outstanding
litigation.

         4.8 Indemnification of Purchasers.

             (a) Subject to the provisions of this Section 4.8, the Company will
indemnify and hold the Purchasers and their directors,  officers,  shareholders,
partners, employees and agents (each, a "Purchaser Party") harmless from any and
all losses, liabilities,  obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements,  court costs and
reasonable  attorneys' fees and costs of  investigation  that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations,  warranties, covenants or agreements made by the Company in
this  Agreement  or in  the  other  Transaction  Documents  or  (b)  any  action
instituted against a Purchaser,  or any of them or their respective  Affiliates,
by any  stockholder  of the Company who is not an Affiliate  of such  Purchaser,
with  respect  to any  of  the  transactions  contemplated  by  the  Transaction
Documents  (unless  such  action  is  based  upon a breach  of such  Purchaser's
representations,  warranties or covenants under the Transaction Documents or any
agreements or  understandings  such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal  securities  laws (or any
comparable jurisdictional laws for the British Virgin Islands) or any conduct by
such Purchaser which constitutes fraud, gross negligence,  willful misconduct or
malfeasance).  If any action  shall be brought  against any  Purchaser  Party in
respect  of which  indemnity  may be sought  pursuant  to this  Agreement,  such
Purchaser  Party shall promptly  notify the Company in writing,  and the Company
shall  have the right to assume  the  defense  thereof  with  counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any  such  action  and  participate  in the  defense  thereof,  but the fees and
expenses of such counsel shall be at the expense of such Purchaser  Party except
to the extent that (i) the employment  thereof has been specifically  authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume  such  defense  and to employ  counsel or (iii) in such action
there is,  in the  reasonable  opinion  of such  separate  counsel,  a  material
conflict  on any  material  issue  between  the  position of the Company and the
position  of such  Purchaser  Party.  The  Company  will  not be  liable  to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected  without  the  Company's  prior  written  consent,  which  shall not be
unreasonably  withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations,  warranties,  covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.

             (b) In no event shall the Company's  liability for  indemnification
to any Purchaser  Party under this Agreement for a breach of Section 3.1 exceed,

                                       22
<PAGE>

in  addition to direct  claims  against  the  Company  not for  indemnity,  such
Purchaser's Subscription Amount.

         4.9 Reservation of Common Stock. As of the date hereof, the Company has
reserved  and the Company  shall  continue to reserve and keep  available at all
times, free of preemptive  rights, a sufficient number of shares of Common Stock
for the  purpose of  enabling  the  Company  to issue  Shares  pursuant  to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.10  Listing  of  Common  Stock.  The  Company  hereby  agrees  to use
commercially reasonable efforts to maintain the listing of the Common Stock on a
Trading  Market,  and not later than the earlier of the  Effective  Date and the
first  anniversary  of the Closing  Date,  to list all of the Shares and Warrant
Shares on such Trading Market.  The Company further  agrees,  if,  following the
Effective Date, the Company applies to have the Common Stock traded on any other
Trading  Market,  it will  include  in such  application  all of the  Shares and
Warrant  Shares,  and will take such other action as is reasonably  necessary to
cause all of the Shares and  Warrant  Shares to be listed on such other  Trading
Market as promptly as  possible.  The  Company  will take all action  reasonably
necessary  to continue  the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company's reporting,  filing and
other obligations under the bylaws or rules of the Trading Market.

         4.11 Equal Treatment of Purchasers.  No consideration  shall be offered
or paid to any  person to amend or consent  to a waiver or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also  offered  to  all  of  the  parties  to  the  Transaction  Documents.   For
clarification  purposes,  this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated  separately by each Purchaser,  and
is intended to treat for the Company the  Purchasers as a class and shall not in
any way be  construed  as the  Purchasers  acting in  concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

         4.12  Participation in Future  Financing.  From the date hereof until 6
months after the Effective Date, upon any financing by the Company of its Common
Stock or Common Stock  Equivalents  (a "Subsequent  Financing"),  each Purchaser
holding 40% or more of its Shares  purchased  pursuant to this Agreement,  shall
have the right to  participate  in up to 50% of such  Subsequent  Financing (the
"Participation  Maximum").  At least 5 Trading  Days prior to the closing of the
Subsequent  Financing,  the Company  shall  deliver to each  Purchaser a written
notice of its intention to effect a Subsequent Financing  ("Pre-Notice"),  which
Pre-Notice  shall ask such  Purchaser  if it wants to review the details of such
financing (such additional notice, a "Subsequent  Financing  Notice").  Upon the
request  of a  Purchaser,  and only  upon a  request  by such  Purchaser,  for a
Subsequent  Financing  Notice,  the Company shall promptly,  but no later than 1
Trading Day after such request,  deliver a Subsequent  Financing  Notice to such
Purchaser.  The Subsequent  Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised  thereunder,  the Person  with whom such  Subsequent  Financing  is
proposed to be effected,  and attached to which shall be a term sheet or similar
document relating thereto. If by 6:30 p.m. (New York  City time) on  the  second

                                       23
<PAGE>

Trading  Day  after  all  of  the  Purchasers   have  received  the  Pre-Notice,
notifications  by the  Purchasers of their  willingness  to  participate  in the
Subsequent  Financing (or to cause their  designees to  participate)  is, in the
aggregate,  less than the Participation Maximum, then the Company may effect the
remaining portion of such Participation  Maximum on the terms and to the Persons
set forth in the Subsequent  Financing Notice. If the Company receives no notice
from a Purchaser as of such 2nd Trading Day, such  Purchaser  shall be deemed to
have  notified  the Company that it does not elect to  participate.  The Company
must provide the Purchasers with a second Subsequent  Financing Notice,  and the
Purchasers  will again have the right of  participation  set forth above in this
Section  4.12, if the  Subsequent  Financing  subject to the initial  Subsequent
Financing  Notice is not  consummated  for any  reason on the terms set forth in
such  Subsequent  Financing  Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. In the event the Company receives responses
to Subsequent  Financing  Notices from Purchasers  seeking to purchase more than
the aggregate  amount of the  Participation  Maximum,  each such Purchaser shall
have the right to purchase  their Pro Rata  Portion  (as  defined  below) of the
Participation  Maximum.  "Pro Rata Portion" is the ratio of (x) the Subscription
Amount of Securities  purchased by a participating  Purchaser and (y) the sum of
the   aggregate   Subscription   Amount   of   all   participating   Purchasers.
Notwithstanding  the foregoing,  this Section 4.12 shall not apply in respect of
an Exempt Issuance.

         4.13 Subsequent  Equity Sales. From the date hereof until 60 days after
the Effective Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents;  provided,  however, the 60 day period
set forth in this  Section 4.13 shall be extended for the number of Trading Days
during such period in which (y) trading in the Common  Stock is suspended by any
Trading Market, or (z) following the Effective Date, the Registration  Statement
is not effective or the prospectus  included in the  Registration  Statement may
not be used by the Purchasers  for the resale of the Shares and Warrant  Shares.
Notwithstanding  the foregoing,  this Section 4.13 shall not apply in respect of
an Exempt Issuance.

         4.14 Delivery of Securities  After Closing.  The Company shall deliver,
or cause to be delivered,  the respective Shares and Warrants  purchased by each
Purchaser to such Purchaser within 3 Trading Days of the Closing Date.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Fees and Expenses.  The Company shall  reimburse The BlueGrass Fund
("BlueGrass")  the sum of $30,000 for its legal fees and expenses  (less $10,000
of which was paid prior to the Closing).  Accordingly,  in lieu of the foregoing
payments,  the  Company,  on the Closing  Date,  will direct that the  aggregate
amount that BlueGrass is to pay for the Shares and Warrants at such Closing,  be
reduced by $20,000. The Company shall deliver, prior to the Closing, a completed
and executed copy of the Closing  Statement,  attached hereto as Annex A. Except
as  otherwise  set forth in this  Agreement,  each party  shall pay the fees and
expenses of its advisers,  counsel,  accountants and other experts,  if any, and
all other  expenses  incurred by such   party   incident   to the   negotiation,

                                       24
<PAGE>

preparation, execution, delivery and performance of this Agreement. The fees and
expenses of Roth Capital,  Investors Relations International and counsel for the
Company  shall be paid at closing  from the  Subscription  Amounts.  The Company
shall pay all stamp and other  taxes and duties  levied in  connection  with the
sale of the Securities.

         5.2 Entire  Agreement.  The  Transaction  Documents,  together with the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.3 Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 6:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second  Trading Day following the date of mailing,  if sent by U.S.
nationally  recognized  overnight courier service, or (d) upon actual receipt by
the party to whom such  notice is  required  to be given.  The  address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

         5.4 Amendments;  Waivers.  No provision of this Agreement may be waived
or amended except in a written  instrument  signed, in the case of an amendment,
by the  Company  and each  Purchaser  or, in the case of a waiver,  by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision,  condition or requirement of this Agreement shall
be deemed to be a continuing  waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner impair the exercise of any such right.

         5.5 Construction.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,  and no
rules of strict construction will be applied against any party.

         5.6  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written  consent of each  Purchaser.  Any Purchaser may assign
any or all of its  rights  under  this  Agreement  to any  Person  to whom  such
Purchaser  assigns or transfers any Securities,  provided such transferee agrees
in  writing to be bound,  with  respect to the  transferred  Securities,  by the
provisions hereof that apply to the "Purchasers".

                                       25
<PAGE>

         5.7 No  Third-Party  Beneficiaries.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.

         5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York,  without  regard to the  principles of conflicts of law thereof.  Each
party hereby irrevocably submits to the exclusive  jurisdiction of the state and
federal  courts  sitting in the City of New York,  borough of Manhattan  for the
adjudication  of any dispute  hereunder  or in  connection  herewith or with any
transaction  contemplated  hereby or discussed herein (including with respect to
the enforcement of any of the  Transaction  Documents),  and hereby  irrevocably
waives,  and agrees not to assert in any suit,  action or proceeding,  any claim
that it is not personally  subject to the  jurisdiction of any such court,  that
such suit,  action or  proceeding  is  improper or  inconvenient  venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy thereof via  registered or certified  mail or overnight  delivery
(with  evidence of  delivery) to such party at the address in effect for notices
to it under this  Agreement and agrees that such service shall  constitute  good
and sufficient  service of process and notice thereof.  Nothing contained herein
shall be  deemed to limit in any way any right to serve  process  in any  manner
permitted  by law. The parties  hereby  waive all rights to a trial by jury.  If
either party shall commence an action or proceeding to enforce any provisions of
the  Transaction  Documents,  then  the  prevailing  party  in  such  action  or
proceeding  shall be reimbursed by the other party for its  attorneys'  fees and
other  costs and  expenses  incurred  with the  investigation,  preparation  and
prosecution of such action or proceeding.

         5.9 Survival.  The  representations and warranties herein shall survive
the  Closing and  delivery  of the Shares and Warrant  Shares for a period of 18
months.

         5.10  Execution.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together 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,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

         5.11  Severability.  If any  provision of this  Agreement is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

                                       26
<PAGE>

         5.12  Replacement  of  Securities.  If any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Securities.

         5.13  Remedies.  In addition to being  entitled to exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

         5.14 Payment Set Aside.  To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law (or any
comparable  jurisdictional  law for the British Virgin  Islands),  common law or
equitable  cause of  action),  then to the  extent of any such  restoration  the
obligation or part thereof originally  intended to be satisfied shall be revived
and  continued  in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

         5.15  Independent  Nature of Purchasers'  Obligations  and Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Purchaser under any Transaction  Document.  Nothing  contained  herein or in any
Transaction  Document,  and no action taken by any Purchaser  pursuant  thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Purchasers  are in any way acting in concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Document.  Each
Purchaser  shall be  entitled to  independently  protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other  Transaction  Documents,  and it shall not be necessary  for any other
Purchaser  to be  joined  as an  additional  party  in any  proceeding  for such
purpose.  Each Purchaser has been  represented by its own separate legal counsel
in their review and  negotiation of the  Transaction  Documents.  For reasons of
administrative  convenience only,  Purchasers and their respective  counsel have
chosen to communicate  with the Company through FW. FW does not represent all of
the  Purchasers  but only  BlueGrass.  The  Company  has  elected to provide all

                                       27
<PAGE>

Purchasers with the same terms and Transaction  Documents for the convenience of
the  Company  and not  because  it was  required  or  requested  to do so by the
Purchasers.

         5.16 Liquidated Damages.  The Company's  obligations to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages or other amounts are due and payable shall have been canceled.

                            (Signature Page Follows)

                                       28
<PAGE>

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

LJ INTERNATIONAL INC.                                     Address for Notice:
                                                          -------------------

By:
   --------------------------------------
   Name:
   Title:

With a copy to (which shall not constitute notice):

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]

                                       29
<PAGE>

        [PURCHASER SIGNATURE PAGES TO JADE SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Entity:_____________________________________________

Address for Notice of Investing Entity:

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:
Shares:
Warrant Shares:
EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

                                       30
<PAGE>

                                                                         ANNEX A

                                CLOSING STATEMENT

Pursuant to the attached  Securities  Purchase  Agreement,  dated as of the date
hereto,  the  purchasers  shall  purchase up to  $5,000,000  of Common Stock and
Warrants from LJ  International  Inc. (the  "Company").  All funds will be wired
into a trust account  maintained by  ____________,  counsel to the Company.  All
funds will be disbursed in accordance with this Closing Statement.

DISBURSEMENT DATE:    September ____, 2004

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

I.   PURCHASE PRICE

                  GROSS PROCEEDS TO BE RECEIVED IN TRUST             $

II.  DISBURSEMENTS

                                                                     $
                                                                     $
                                                                     $
                                                                     $
                                                                     $

TOTAL AMOUNT DISBURSED:                                              $

WIRE INSTRUCTIONS:

To:
    -------------------------------------

To:
    -------------------------------------

                                       31
<PAGE>

                                    SCHEDULES

                                     TO THE

                          SECURITIES PURCHASE AGREEMENT

                                  BY AND AMONG

                              LJ INTERNATIONAL INC.
                     (A BRITISH VIRGIN ISLANDS CORPORATION),

                          AND THE PURCHASERS IDENTIFIED

                         ON THE SIGNATURE PAGES THERETO,

                          DATED AS OF SEPTEMBER 1, 2004

Capitalized  terms these  Schedules  use but do not define  have the  respective
meanings assigned to them in the Securities Purchase Agreement referred to above
(the  "Agreement")  unless the context  otherwise  requires.  Any reference to a
section number in these Schedules refers to that section of the Agreement unless
the context otherwise  requires.  Headings  contained in these Schedules are for
reference   purposes  only  and  shall  not  affect  in  any  way  the  meaning,
interpretation or construction of the information disclosed herein.

These  Schedules are qualified in their  entirety by reference to the provisions
of the Agreement, and are not intended to constitute, and shall not be construed
as constituting,  representations,  warranties,  covenants or obligations of the
parties except as and to the extent provided in the Agreement.

<PAGE>

                                 SCHEDULE 3.1(a)

                                  SUBSIDIARIES

See  disclosures  of  significant  subsidiaries  included  in Exhibit 8.1 of the
Company's Form 20-F, filed on March 31, 2004.

With the exception of such subsidiaries included in Exhibit 8.1 of the Company's
Form 20-F,  filed on March 31, 2004, all additional  subsidiaries of the Company
are non-operational and/or formed for tax purposes only.

<PAGE>

                                 SCHEDULE 3.1(g)

                                 CAPITALIZATION

The following additional options and warrants to purchase shares of Common Stock
were outstanding:

  o 1,679,000 common stock purchase warrants which are publicly traded and which
were issued in the  Company's  April 1998  initial  public  offering to purchase
1,679,000  shares of common stock at $5.75 per share  through April 15, 2005 (as
amended);

  o 146,000 stock purchase options to purchase 146,000 shares of common stock at
$8.25 per share through April 15, 2005 (as amended),  which were sold to the IPO
underwriter and/or persons related to the underwriter;

  o warrants to purchase  75,000 shares at $3.75 per share through  November 30,
2004, and warrants to purchase  87,500 shares at $6.9375 per share through March
31,  2005,  which  were  granted  to two  investors  and a  placement  agent  in
connection  with two tranches of the  Company's  3%  Convertible  Debentures  on
November 5, 1999, and March 22, 2000;

  o  warrants  to  purchase  shares  which were  granted  to a former  financial
consultant on June 1, 2001, for services  rendered in connection  with corporate
development, and which are currently outstanding as follows:

  o 80,000 shares at $4.57 per share exercisable through May 31, 2005.

  o warrants to purchase  200,000  shares at $3.00 per share through  August 15,
2006, which were granted to The Bauer  Partnership,  Inc. on August 16, 2001, in
connection with a proposed debt placement which was never completed

<PAGE>

                                 SCHEDULE 3.1(q)

                   TRANSACTIONS WITH AFFILIATES AND EMPLOYEES

See  disclosure  of  Related  Party  Transaction  set  forth  in Item 7.B of the
Company's Form 20-F filed on March 31, 2004.

<PAGE>

                                 SCHEDULE 3.1(s)

                                  CERTAIN FEES

Roth Capital  Partners  shall receive a fee equal to seven percent (7%) of gross
proceeds  from the sale of the  Common  Stock and  Warrants,  and shall  also be
entitled to reimbursement of out-of-pocket expenses.

Investor Relations International shall receive a finder's fee equal to $400,000.

<PAGE>

                                 SCHEDULE 3.1(v)

                         OUTSTANDING REGISTRATION RIGHTS

   The Company issued 80,000 warrants at $4.57 per share, exercisable through
            May 31, 2005, which have piggyback registration rights.

<PAGE>

                                 SCHEDULE 3.1(x)

                       APPLICATION OF TAKEOVER PROTECTIONS

The Company is a BVI  corporation,  and the  Company's  Directors  may amend the
Memorandum and Articles of Association without shareholder  consent.  Therefore,
it is within the discretion of the Company's Directors to provide for additional
classes of stock, which may provide the Company with anti-takeover protection.

Section 3.2(i) is hereby incorporated by reference.

<PAGE>

                                SCHEDULE 3.1(ff)

                                   ACCOUNTANTS

Moores Rowland Mazars

<PAGE>

                                    EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                    EXHIBIT B

                      FORM OF COMMON STOCK PURCHASE WARRANT

<PAGE>

                                    EXHIBIT C

                        LEGAL OPINION OF COMPANY COUNSEL

<PAGE>

                                    EXHIBIT D

                             FORM OF LOCK-UP LETTERNEITHER THESE  SECURITIES  NOR THE  SECURITIES  INTO WHICH THESE  SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES  LAWS AS  EVIDENCED BY A LEGAL  OPINION OF COUNSEL TO THE  TRANSFEROR
REASONABLY  ACCEPTABLE  TO THE COMPANY TO SUCH  EFFECT,  THE  SUBSTANCE OF WHICH
SHALL  BE  REASONABLY  ACCEPTABLE  TO THE  COMPANY.  THESE  SECURITIES  AND  THE
SECURITIES  ISSUABLE  UPON  EXERCISE  OF  THESE  SECURITIES  MAY BE  PLEDGED  IN
CONNECTION  WITH A BONA  FIDE  MARGIN  ACCOUNT  OR OTHER  LOAN  SECURED  BY SUCH
SECURITIES.

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                              LJ INTERNATIONAL INC.

                  THIS COMMON STOCK PURCHASE  WARRANT (the "Warrant")  certifies
that, for value received,  _____________ (the "Holder"),  is entitled,  upon the
terms and subject to the limitations on exercise and the conditions  hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of  business  on the five year  anniversary  of the
Initial Exercise Date (the "Termination Date") but not thereafter,  to subscribe
for  and  purchase  from  LJ  International   Inc.,  a  British  Virgin  Islands
corporation  (the  "Company"),  up to ______  shares (the  "Warrant  Shares") of
Common Stock,  par value $0.01 per share,  of the Company (the "Common  Stock").
The purchase  price of one share of Common Stock (the  "Exercise  Price")  under
this Warrant shall be $2.98, subject to adjustment hereunder.

         Section  1.  Definitions.  Capitalized  terms  used  and not  otherwise
defined  herein shall have the  meanings  set forth in that  certain  Securities
Purchase  Agreement (the "Purchase  Agreement"),  dated September 1, 2004, among
the Company and the purchasers signatory thereto.

         Section 2. Exercise.

                  a)  Exercise  of  Warrant.  Exercise  of the  purchase  rights
         represented  by this  Warrant  may be made at any  time or  times on or
         after the Initial  Exercise Date and on or before the Termination  Date
         by  delivery to the Company of a duly  executed  facsimile  copy of the
         Notice of Exercise Form annexed  hereto (or such other office or agency

<PAGE>

         of  the  Company  as it may  designate  by  notice  in  writing  to the
         registered  Holder at the address of such Holder appearing on the books
         of the Company);  provided,  however, within 5 Trading Days of the date
         said Notice of Exercise is delivered  to the Company,  the Holder shall
         have surrendered this Warrant to the Company and the Company shall have
         received payment of the aggregate  Exercise Price of the shares thereby
         purchased by wire transfer or cashier's  check drawn on a United States
         bank.

                  b) Exercise Price.  The Exercise Price of each share of Common
         Stock  under  this  Warrant  shall  be  $2.98,  subject  to  adjustment
         hereunder.

                  c) Cashless  Exercise.  If at any time after one year from the
         date of issuance of this  Warrant  there is no  effective  Registration
         Statement  registering  the resale of the Warrant Shares by the Holder,
         then  this  Warrant  may also be  exercised  at such time by means of a
         "cashless  exercise" in which the Holder shall be entitled to receive a
         certificate  for the number of  Warrant  Shares  equal to the  quotient
         obtained by dividing [(A-B) (X)] by (A), where:

                   (A) =  the VWAP on the Trading Day  immediately preceding the
                          date of such election;

                   (B) =  the Exercise Price of this Warrant, as adjusted; and

                   (X) =  the  number of  Warrant Shares  issuable upon exercise
                          of this Warrant in  accordance  with the terms of this
                          Warrant  by means  of a cash  exercise  rather  than a
                          cashless exercise.

                  d) Exercise Limitations.

                           i. Holder's  Restrictions.  The Holder shall not have
                     the right to exercise any portion of this Warrant, pursuant
                     to Section  2(c) or  otherwise,  to the  extent  that after
                     giving effect to such issuance after  exercise,  the Holder
                     (together  with the Holder's  affiliates),  as set forth on
                     the applicable Notice of Exercise,  would  beneficially own
                     in  excess of 4.99% of the  number of shares of the  Common
                     Stock  outstanding  immediately after giving effect to such
                     issuance.  For  purposes  of the  foregoing  sentence,  the
                     number of shares of Common Stock  beneficially owned by the
                     Holder  and its  affiliates  shall  include  the  number of
                     shares of  Common  Stock  issuable  upon  exercise  of this
                     Warrant  with  respect to which the  determination  of such
                     sentence  is being  made,  but shall  exclude the number of
                     shares of Common  Stock which  would be  issuable  upon (A)
                     exercise  of the  remaining,  nonexercised  portion of this
                     Warrant  beneficially  owned  by the  Holder  or any of its
                     affiliates   and  (B)   exercise  or   conversion   of  the
                     unexercised or nonconverted portion of any other securities
                     of the Company (including,  without  limitation,  any other
                     Debentures   or  Warrants)   subject  to  a  limitation  on
                     conversion   or  exercise   analogous  to  the   limitation
                     contained herein beneficially owned by the Holder or any of
                     its  affiliates.  Except  as set  forth  in  the  preceding
                     sentence,  for  purposes of this Section  2(d),  beneficial

                                       2
<PAGE>

                     ownership  shall be calculated  in accordance  with Section
                     13(d) of the Exchange Act, it being  acknowledged by Holder
                     that the  Company is not  representing  to Holder that such
                     calculation  is in  compliance  with  Section  13(d) of the
                     Exchange  Act and  Holder  is  solely  responsible  for any
                     schedules required to be filed in accordance therewith.  To
                     the extent that the  limitation  contained  in this Section
                     2(d) applies,  the determination of whether this Warrant is
                     exercisable (in relation to other  securities  owned by the
                     Holder)  and  of  which  a  portion  of  this   Warrant  is
                     exercisable shall be in the sole discretion of such Holder,
                     and the  submission of a Notice of Exercise shall be deemed
                     to be such Holder's  determination  of whether this Warrant
                     is exercisable  (in relation to other  securities  owned by
                     such  Holder)  and of  which  portion  of this  Warrant  is
                     exercisable,   in  each  case  subject  to  such  aggregate
                     percentage  limitation,  and  the  Company  shall  have  no
                     obligation  to  verify  or  confirm  the  accuracy  of such
                     determination.  For  purposes  of  this  Section  2(d),  in
                     determining  the  number  of  outstanding  shares of Common
                     Stock,  the Holder  may rely on the  number of  outstanding
                     shares of Common Stock as  reflected  in (x) the  Company's
                     most   recent  SEC  Report,   (y)  a  more  recent   public
                     announcement  by the Company or (z) any other notice by the
                     Company or the Company's  Transfer  Agent setting forth the
                     number  of shares of  Common  Stock  outstanding.  Upon the
                     written or oral  request of the Holder,  the Company  shall
                     within two Trading  Days  confirm  orally and in writing to
                     the  Holder  the  number of shares  of  Common  Stock  then
                     outstanding.  In any case, the number of outstanding shares
                     of Common Stock shall be determined  after giving effect to
                     the  conversion  or exercise of  securities of the Company,
                     including  this  Warrant,  by the Holder or its  affiliates
                     since  the  date as of which  such  number  of  outstanding
                     shares of Common Stock was reported.

                           ii. Intentionally Omitted.

                  e) Mechanics of Exercise.

                           i.  Authorization  of  Warrant  Shares.  The  Company
                     covenants  that all Warrant Shares which may be issued upon
                     the exercise of the  purchase  rights  represented  by this
                     Warrant  will,   upon  exercise  of  the  purchase   rights
                     represented by this Warrant,  be duly  authorized,  validly
                     issued,  fully  paid and  nonassessable  and free  from all
                     taxes,  liens and  charges in respect of the issue  thereof
                     (other  than  taxes in respect  of any  transfer  occurring
                     contemporaneously  with such issue).  The Company covenants
                     that during the period the Warrant is outstanding,  it will
                     reserve from its  authorized  and  unissued  Common Stock a
                     sufficient  number of shares to provide for the issuance of
                     the Warrant Shares upon the exercise of any purchase rights
                     under this Warrant.  The Company further covenants that its
                     issuance of this Warrant shall constitute full authority to
                     its  officers  who are charged  with the duty of  executing
                     stock  certificates  to  execute  and issue  the  necessary
                     certificates  for the Warrant  Shares upon the  exercise of

                                       3
<PAGE>

                     the purchase  rights under this  Warrant.  The Company will
                     take all such  reasonable  action  as may be  necessary  to
                     assure that such  Warrant  Shares may be issued as provided
                     herein   without   violation  of  any   applicable  law  or
                     regulation,  or of any  requirements  of the Trading Market
                     upon which the Common Stock may be listed.

                           ii.   Delivery   of   Certificates   Upon   Exercise.
                     Certificates  for  shares  purchased   hereunder  shall  be
                     delivered  to the  Holder  within 3  Trading  Days from the
                     delivery  to the  Company of the Notice of  Exercise  Form,
                     surrender  of this  Warrant  and  payment of the  aggregate
                     Exercise Price as set forth above  ("Warrant Share Delivery
                     Date"). This Warrant shall be deemed to have been exercised
                     on the date the Exercise  Price is received by the Company.
                     The Warrant Shares shall be deemed to have been issued, and
                     Holder  or any  other  person  so  designated  to be  named
                     therein  shall be deemed to have  become a holder of record
                     of such shares for all purposes, as of the date the Warrant
                     has  been  exercised  by  payment  to  the  Company  of the
                     Exercise  Price  and all taxes  required  to be paid by the
                     Holder,  if any, pursuant to Section 2(e)(vii) prior to the
                     issuance of such shares, have been paid.

                           iii. Delivery of New Warrants Upon Exercise.  If this
                     Warrant  shall have been  exercised  in part,  the  Company
                     shall,  at the  time  of  delivery  of the  certificate  or
                     certificates representing Warrant Shares, deliver to Holder
                     a new Warrant  evidencing  the rights of Holder to purchase
                     the unpurchased  Warrant Shares called for by this Warrant,
                     which new Warrant shall in all other  respects be identical
                     with this Warrant.

                           iv.  Rescission  Rights.  If  the  Company  fails  to
                     deliver  to  the  Holder  a  certificate  or   certificates
                     representing  the Warrant  Shares  pursuant to this Section
                     2(e)(iv)  by the  Warrant  Share  Delivery  Date,  then the
                     Holder will have the right to rescind such exercise

                           v.  Buy-In  Compensation.  In  addition  to any other
                     rights  available  to the Holder,  if the Company  fails to
                     deliver  to  the  Holder  a  certificate  or   certificates
                     representing  the Warrant Shares pursuant to an exercise on
                     or before the Warrant  Share  Delivery  Date,  and if after
                     such date the Holder is  required by its broker to purchase
                     (in an open  market  transaction  or  otherwise)  shares of
                     Common  Stock to deliver in  satisfaction  of a sale by the
                     Holder of the Warrant  Shares which the Holder  anticipated
                     receiving upon such exercise (a "Buy-In"), then the Company
                     shall (1) pay in cash to the Holder the amount by which (x)
                     the Holder's  total  purchase  price  (including  brokerage
                     commissions,  if any) for the  shares  of  Common  Stock so
                     purchased  exceeds (y) the amount  obtained by  multiplying
                     (A) the  number of  Warrant  Shares  that the  Company  was
                     required  to deliver to the Holder in  connection  with the
                     exercise  at issue  times  (B) the  price at which the sell
                     order giving rise to such purchase obligation was executed,

                                       4
<PAGE>

                     and (2) at the option of the Holder,  either  reinstate the
                     portion of the  Warrant  and  equivalent  number of Warrant
                     Shares for which such  exercise  was not honored or deliver
                     to the  Holder  the  number of shares of Common  Stock that
                     would have been issued had the Company timely complied with
                     its  exercise  and  delivery  obligations  hereunder.   For
                     example,  if the Holder  purchases  Common  Stock  having a
                     total  purchase  price of  $11,000  to cover a Buy-In  with
                     respect to an attempted  exercise of shares of Common Stock
                     with an aggregate  sale price giving rise to such  purchase
                     obligation of $10,000,  under clause (1) of the immediately
                     preceding sentence the Company shall be required to pay the
                     Holder $1,000. The Holder shall provide the Company written
                     notice  indicating  the  amounts  payable  to the Holder in
                     respect   of   the   Buy-In,   together   with   applicable
                     confirmations  and other evidence  reasonably  requested by
                     the Company. Nothing herein shall limit a Holder's right to
                     pursue any other remedies available to it hereunder, at law
                     or in equity  including,  without  limitation,  a decree of
                     specific  performance and/or injunctive relief with respect
                     to the  Company's  failure to timely  deliver  certificates
                     representing  shares of Common  Stock upon  exercise of the
                     Warrant as required pursuant to the terms hereof.

                           vi. No  Fractional  Shares or  Scrip.  No  fractional
                     shares or scrip  representing  fractional  shares  shall be
                     issued  upon  the  exercise  of  this  Warrant.  As to  any
                     fraction  of  a  share  which  Holder  would  otherwise  be
                     entitled to purchase upon such exercise,  the Company shall
                     pay a cash  adjustment in respect of such final fraction in
                     an amount equal to such fraction multiplied by the Exercise
                     Price.

                           vii.  Charges,   Taxes  and  Expenses.   Issuance  of
                     certificates  for  Warrant  Shares  shall  be made  without
                     charge to the Holder for any issue or transfer tax or other
                     incidental  expense  in  respect  of the  issuance  of such
                     certificate,  all of which taxes and expenses shall be paid
                     by the Company,  and such  certificates  shall be issued in
                     the name of the  Holder  or in such name or names as may be
                     directed  by the  Holder;  provided,  however,  that in the
                     event certificates for Warrant Shares are to be issued in a
                     name other than the name of the Holder,  this  Warrant when
                     surrendered  for  exercise  shall  be  accompanied  by  the
                     Assignment  Form  attached  hereto  duly  executed  by  the
                     Holder;  and  the  Company  may  require,  as  a  condition
                     thereto,  the payment of a sum  sufficient  to reimburse it
                     for any transfer tax incidental thereto.

                           viii.  Closing of Books.  The Company  will not close
                     its  stockholder  books  or  records  in any  manner  which
                     prevents the timely  exercise of this Warrant,  pursuant to
                     the terms hereof.

         Section 3. Certain Adjustments.

                                       5
<PAGE>

                  a) Stock  Dividends  and Splits.  If the Company,  at any time
         while  this  Warrant  is  outstanding:  (A)  pays a stock  dividend  or
         otherwise make a distribution or  distributions on shares of its Common
         Stock or any other equity or equity  equivalent  securities  payable in
         shares  of Common  Stock  (which,  for  avoidance  of doubt,  shall not
         include any shares of Common  Stock  issued by the Company  pursuant to
         this Warrant), (B) subdivides outstanding shares of Common Stock into a
         larger  number of shares,  (C)  combines  (including  by way of reverse
         stock split)  outstanding  shares of Common Stock into a smaller number
         of shares,  or (D) issues by  reclassification  of shares of the Common
         Stock any shares of capital stock of the Company, then in each case the
         Exercise Price shall be multiplied by a fraction of which the numerator
         shall be the  number  of shares of  Common  Stock  (excluding  treasury
         shares,  if  any)  outstanding  before  such  event  and of  which  the
         denominator  shall be the number of shares of Common Stock  outstanding
         after such event.  Any  adjustment  made  pursuant to this Section 3(a)
         shall  become  effective  immediately  after  the  record  date for the
         determination  of  stockholders  entitled to receive  such  dividend or
         distribution and shall become effective immediately after the effective
         date in the case of a subdivision, combination or re-classification.

                  b) Subsequent  Equity Sales.  If the Company or any Subsidiary
         thereof, as applicable,  at any time while this Warrant is outstanding,
         shall offer, sell, grant any option to purchase or offer, sell or grant
         any right to reprice its securities,  or otherwise  dispose of or issue
         (or announce any offer,  sale, grant or any option to purchase or other
         disposition) any Common Stock or Common Stock Equivalents entitling any
         Person to acquire  shares of Common  Stock,  at an effective  price per
         share less than the then  Exercise  Price (such lower price,  the "Base
         Share Price" and such issuances  collectively,  a "Dilutive Issuance"),
         as  adjusted  hereunder  (if the holder of the  Common  Stock or Common
         Stock Equivalents so issued shall at any time,  whether by operation of
         purchase price  adjustments,  reset  provisions,  floating  conversion,
         exercise or exchange prices or otherwise,  or due to warrants,  options
         or rights per share which is issued in connection  with such  issuance,
         be entitled to receive shares of Common Stock at an effective price per
         share which is less than the Exercise  Price,  such  issuance  shall be
         deemed to have occurred for less than the Exercise  Price),  then,  the
         Exercise Price shall be reduced by multiplying  the Exercise Price by a
         fraction,  the  numerator  of which is the  number  of shares of Common
         Stock issued and outstanding immediately prior to the Dilutive Issuance
         plus the number of shares of Common Stock which the offering  price for
         such Dilutive  Issuance would purchase at the then Exercise Price,  and
         the  denominator  of which  shall be the sum of the number of shares of
         Common Stock issued and outstanding  immediately  prior to the Dilutive
         Issuance  plus the  number  of  shares  of  Common  Stock so  issued or
         issuable in  connection  with the Dilutive  Issuance.  Such  adjustment
         shall be made  whenever  such Common Stock or Common Stock  Equivalents
         are issued.  The Company  shall notify the Holder in writing,  no later
         than the second business day following the issuance of any Common Stock
         or Common Stock Equivalents subject to this section, indicating therein
         the applicable  issuance price, or of applicable reset price,  exchange
         price, conversion price and other pricing terms.

                  c) Pro Rata  Distributions.  If the Company, at any time prior
         to the  Termination  Date,  shall  distribute  to all holders of Common
         Stock  (and  not  to  Holders  of  the   Warrants)   evidences  of  its

                                       6
<PAGE>

         indebtedness  or  assets  or rights or  warrants  to  subscribe  for or
         purchase  any  security  other than the Common  Stock  (which  shall be
         subject to Section  3(b)),  then in each such case the  Exercise  Price
         shall  be  adjusted  by  multiplying   the  Exercise  Price  in  effect
         immediately  prior  to the  record  date  fixed  for  determination  of
         stockholders  entitled to receive  such  distribution  by a fraction of
         which the  denominator  shall be the VWAP  determined  as of the record
         date mentioned  above, and of which the numerator shall be such VWAP on
         such  record  date less the then per share  fair  market  value at such
         record date of the  portion of such assets or evidence of  indebtedness
         so distributed  applicable to one outstanding share of the Common Stock
         as determined  by the Board of Directors in good faith.  In either case
         the  adjustments  shall be  described  in a  statement  provided to the
         Holders  of the  portion  of assets or  evidences  of  indebtedness  so
         distributed  or such  subscription  rights  applicable  to one share of
         Common  Stock.   Such  adjustment  shall  be  made  whenever  any  such
         distribution is made and shall become effective  immediately  after the
         record date mentioned above.

                  d) Calculations.  All calculations  under this Section 3 shall
         be made to the nearest cent or the nearest  1/100th of a share,  as the
         case may be. For  purposes  of this  Section 3, the number of shares of
         Common  Stock  outstanding  as of a given  date shall be the sum of the
         number of shares of Common Stock (excluding  treasury  shares,  if any)
         outstanding.

                  e) Notice to Holders.

                           i.  Adjustment  to  Exercise   Price.   Whenever  the
                     Exercise Price is adjusted  pursuant to this Section 3, the
                     Company shall promptly mail to each Holder a notice setting
                     forth the Exercise Price after such  adjustment and setting
                     forth  a  brief  statement  of  the  facts  requiring  such
                     adjustment. If the Company issues a variable rate security,
                     despite the prohibition  thereon in the Purchase Agreement,
                     the Company  shall be deemed to have issued Common Stock or
                     Common Stock Equivalents at the lowest possible  conversion
                     or exercise price at which such securities may be converted
                     or exercised in the case of a Variable Rate Transaction (as
                     defined in the Purchase Agreement),  or the lowest possible
                     adjustment  price  in the  case of an MFN  Transaction  (as
                     defined in the Purchase Agreement.

                           ii.  Notice to Allow  Exercise by Holder.  If (A) the
                     Company   shall   declare   a   dividend   (or  any   other
                     distribution)  on the Common  Stock;  (B) the Company shall
                     declare  a  special  nonrecurring  cash  dividend  on  or a
                     redemption  of the  Common  Stock;  (C) the  Company  shall
                     authorize  the  granting to all holders of the Common Stock
                     rights or warrants to subscribe  for or purchase any shares
                     of  capital  stock of any class or of any  rights;  (D) the
                     approval  of any  stockholders  of  the  Company  shall  be
                     required in  connection  with any  reclassification  of the
                     Common  Stock,  any  consolidation  or  merger to which the
                     Company  is a  party,  any  sale  or  transfer  of  all  or
                     substantially  all of the  assets  of the  Company,  of any
                     compulsory  share  exchange  whereby  the  Common  Stock is
                     converted into other securities,  cash or property; (E) the

                                       7
<PAGE>

                     Company  shall   authorize  the  voluntary  or  involuntary
                     dissolution,  liquidation  or winding up of the  affairs of
                     the Company; then, in each case, the Company shall cause to
                     be mailed to the Holder at its last  addresses  as it shall
                     appear upon the Warrant  Register of the Company,  at least
                     20  calendar  days  prior  to  the  applicable   record  or
                     effective date hereinafter  specified, a notice stating (x)
                     the date on which a record is to be taken  for the  purpose
                     of  such  dividend,  distribution,  redemption,  rights  or
                     warrants, or if a record is not to be taken, the date as of
                     which  the  holders  of the  Common  Stock of  record to be
                     entitled  to  such  dividend,  distributions,   redemption,
                     rights or warrants are to be  determined or (y) the date on
                     which such reclassification,  consolidation,  merger, sale,
                     transfer or share exchange is expected to become  effective
                     or  close,  and the date as of which  it is  expected  that
                     holders of the Common  Stock of record shall be entitled to
                     exchange  their shares of the Common Stock for  securities,
                     cash   or   other    property    deliverable    upon   such
                     reclassification,  consolidation, merger, sale, transfer or
                     share  exchange;  provided,  that the  failure to mail such
                     notice or any  defect  therein  or in the  mailing  thereof
                     shall not  affect  the  validity  of the  corporate  action
                     required  to be  specified  in such  notice.  The Holder is
                     entitled to exercise this Warrant  during the 20-day period
                     commencing the date of such notice to the effective date of
                     the event triggering such notice

                  f) Fundamental Transaction. If, at any time while this Warrant
         is outstanding,  (A) the Company effects any merger or consolidation of
         the Company with or into another  Person,  (B) the Company  effects any
         sale of all or  substantially  all of its  assets in one or a series of
         related  transactions,  (C) any tender offer or exchange offer (whether
         by the  Company  or  another  Person) is  completed  pursuant  to which
         holders  of Common  Stock are  permitted  to tender or  exchange  their
         shares  for other  securities,  cash or  property,  or (D) the  Company
         effects  any  reclassification  of the Common  Stock or any  compulsory
         share  exchange  pursuant  to which  the  Common  Stock is  effectively
         converted into or exchanged for other securities,  cash or property (in
         any such case, a "Fundamental Transaction"),  then, upon any subsequent
         conversion of this Warrant, the Holder shall have the right to receive,
         for each Warrant Share that would have been issuable upon such exercise
         absent  such  Fundamental  Transaction  the  number of shares of Common
         Stock of the successor or acquiring  corporation or of the Company,  if
         it is the surviving corporation, and Alternate Consideration receivable
         upon or as a result of such reorganization,  reclassification,  merger,
         consolidation  or  disposition  of assets by a Holder of the  number of
         shares  of  Common  Stock  for  which  this   Warrant  is   exercisable
         immediately  prior to such event (the "Alternate  Consideration").  For
         purposes of any such exercise,  the determination of the Exercise Price
         shall  be   appropriately   adjusted   to   apply  to  such   Alternate
         Consideration based on the amount of Alternate  Consideration  issuable
         in  respect  of  one  share  of  Common   Stock  in  such   Fundamental
         Transaction,  and the Company shall  apportion the Exercise Price among
         the  Alternate  Consideration  in a reasonable  manner  reflecting  the
         relative   value  of  any   different   components   of  the  Alternate
         Consideration.  If holders  of Common  Stock are given any choice as to
         the  securities,  cash or  property  to be  received  in a  Fundamental
         Transaction,  then the Holder  shall be given the same choice as to the

                                       8
<PAGE>

         Alternate  Consideration  it receives upon any exercise of this Warrant
         following  such  Fundamental  Transaction.  To the extent  necessary to
         effectuate  the foregoing  provisions,  any successor to the Company or
         surviving  entity in such  Fundamental  Transaction  shall issue to the
         Holder a new  warrant  consistent  with the  foregoing  provisions  and
         evidencing  the Holder's  right to exercise such warrant into Alternate
         Consideration.   The  terms  of  any  agreement  pursuant  to  which  a
         Fundamental  Transaction is effected shall include terms  requiring any
         such  successor or surviving  entity to comply with the  provisions  of
         this  paragraph  (f) and  insuring  that  this  Warrant  (or  any  such
         replacement  security)  will be similarly  adjusted upon any subsequent
         transaction analogous to a Fundamental Transaction.

                  g)  Exempt  Issuance.   Notwithstanding   the  foregoing,   no
         adjustments, Alternate Consideration nor notices shall be made, paid or
         issued under this Section 3 in respect of an Exempt Issuance.

                  h)  Voluntary  Adjustment  By Company.  The Company may at any
         time during the term of this Warrant  reduce the then current  Exercise
         Price to any amount and for any period of time  deemed  appropriate  by
         the Board of Directors of the Company.

         Section 4. Transfer of Warrant.

                  a) Transferability.  Subject to compliance with any applicable
         securities  laws and the conditions set forth in Sections 5(a) and 4(d)
         hereof and to the provisions of Section 4.1 of the Purchase  Agreement,
         this Warrant and all rights hereunder are transferable,  in whole or in
         part,  upon  surrender of this Warrant at the  principal  office of the
         Company,   together   with  a  written   assignment   of  this  Warrant
         substantially  in the form attached  hereto duly executed by the Holder
         or its agent or attorney and funds sufficient to pay any transfer taxes
         payable upon the making of such  transfer.  Upon such surrender and, if
         required,  such  payment,  the Company  shall execute and deliver a new
         Warrant or Warrants in the name of the assignee or assignees and in the
         denomination   or   denominations   specified  in  such  instrument  of
         assignment,  and shall issue to the  assignor a new Warrant  evidencing
         the portion of this  Warrant not so assigned,  and this  Warrant  shall
         promptly  be  cancelled.  A  Warrant,  if  properly  assigned,  may  be
         exercised  by a new holder for the purchase of Warrant  Shares  without
         having a new Warrant issued.

                  b) New Warrants.  This Warrant may be divided or combined with
         other Warrants upon presentation  hereof at the aforesaid office of the
         Company,  together  with a  written  notice  specifying  the  names and
         denominations  in which new  Warrants  are to be issued,  signed by the
         Holder or its agent or  attorney.  Subject to  compliance  with Section
         4(a),  as to any  transfer  which may be involved  in such  division or
         combination,  the  Company  shall  execute and deliver a new Warrant or
         Warrants  in  exchange  for the  Warrant or  Warrants  to be divided or
         combined in accordance with such notice.

                  c) Warrant Register.  The Company shall register this Warrant,
         upon  records to be  maintained  by the Company for that  purpose  (the
         "Warrant Register"),  in the name of the record Holder hereof from time
         to time. The Company may deem and treat the  registered  Holder of this
         Warrant as the  absolute  owner  hereof for the purpose of any exercise
         hereof or any  distribution to the Holder,  and for all other purposes,
         absent actual notice to the contrary.

                                       9
<PAGE>

                  d) Transfer Restrictions.  If, at the time of the surrender of
         this  Warrant in  connection  with any  transfer of this  Warrant,  the
         transfer  of  this  Warrant  shall  not be  registered  pursuant  to an
         effective  registration  statement  under the  Securities Act and under
         applicable  state and  jurisdictional  securities or blue sky laws, the
         Company may require,  as a condition of allowing such transfer (i) that
         the Holder or transferee of this Warrant,  as the case may be,  furnish
         to the Company a written  opinion of counsel (which opinion shall be in
         form,  substance  and  scope  customary  for  opinions  of  counsel  in
         comparable  transactions)  to the effect that such transfer may be made
         without  registration  under the  Securities  Act and under  applicable
         state and  jurisdictional  securities  or blue sky laws,  (ii) that the
         holder or  transferee  execute and deliver to the Company an investment
         letter in form and  substance  acceptable to the Company and (iii) that
         the  transferee  be  an  "accredited   investor"  as  defined  in  Rule
         501(a)(1),  (a)(2),  (a)(3),  (a)(7),  or (a)(8)  promulgated under the
         Securities  Act or a qualified  institutional  buyer as defined in Rule
         144A(a) under the Securities Act.

         Section 5. Miscellaneous.

                  a) Title to Warrant. Prior to the Termination Date and subject
         to compliance with applicable laws and Section 4 of this Warrant,  this
         Warrant and all rights hereunder are transferable, in whole or in part,
         at the  office or agency of the  Company  by the Holder in person or by
         duly authorized attorney,  upon surrender of this Warrant together with
         the Assignment  Form annexed hereto properly  endorsed.  The transferee
         shall  sign an  investment  letter  in form  and  substance  reasonably
         satisfactory to the Company.

                  b) No Rights as Shareholder Until Exercise.  This Warrant does
         not  entitle  the  Holder to any  voting  rights  or other  rights as a
         shareholder  of the  Company  prior to the  exercise  hereof.  Upon the
         surrender  of this  Warrant and the payment of the  aggregate  Exercise
         Price  (or by means of a  cashless  exercise),  the  Warrant  Shares so
         purchased  shall be and be deemed  to be  issued to such  Holder as the
         record owner of such shares as of the close of business on the later of
         the date of such surrender or payment.

                  c) Loss,  Theft,  Destruction  or Mutilation  of Warrant.  The
         Company  covenants  that  upon  receipt  by  the  Company  of  evidence
         reasonably  satisfactory  to it of  the  loss,  theft,  destruction  or
         mutilation  of this  Warrant or any stock  certificate  relating to the
         Warrant Shares, and in case of loss, theft or destruction, of indemnity
         or security  reasonably  satisfactory to it (which,  in the case of the
         Warrant, shall not include the posting of any bond), and upon surrender
         and  cancellation of such Warrant or stock  certificate,  if mutilated,
         the Company will make and deliver a new Warrant or stock certificate of
         like tenor and dated as of such  cancellation,  in lieu of such Warrant
         or stock certificate.

                  d) Saturdays, Sundays, Holidays, etc. If the last or appointed
         day for  the  taking  of any  action  or the  expiration  of any  right
         required  or  granted  herein  shall be a  Saturday,  Sunday or a legal

                                       10
<PAGE>

         holiday,  then such action may be taken or such right may be  exercised
         on the next succeeding day not a Saturday, Sunday or legal holiday.

         e) Authorized Shares.

                           The  Company  covenants  that  during  the period the
                  Warrant is  outstanding,  it will reserve from its  authorized
                  and unissued  Common  Stock a  sufficient  number of shares to
                  provide  for the  issuance  of the  Warrant  Shares  upon  the
                  exercise  of any  purchase  rights  under  this  Warrant.  The
                  Company  further  covenants  that its issuance of this Warrant
                  shall  constitute  full  authority  to its  officers  who  are
                  charged  with  the duty of  executing  stock  certificates  to
                  execute and issue the necessary  certificates  for the Warrant
                  Shares upon the  exercise of the  purchase  rights  under this
                  Warrant.  The Company will take all such reasonable  action as
                  may be  necessary  to assure that such  Warrant  Shares may be
                  issued as provided herein without  violation of any applicable
                  law or  regulation,  or of  any  requirements  of the  Trading
                  Market upon which the Common Stock may be listed.

                           Except and to the extent as waived or consented to by
                  the Holder,  the Company  shall not by any action,  including,
                  without limitation,  amending its certificate of incorporation
                  or   through   any   reorganization,   transfer   of   assets,
                  consolidation,   merger,   dissolution,   issue   or  sale  of
                  securities  or any other  voluntary  action,  avoid or seek to
                  avoid the  observance  or  performance  of any of the terms of
                  this  Warrant,  but will at all times in good faith  assist in
                  the  carrying  out of all such  terms and in the taking of all
                  such actions as may be necessary or appropriate to protect the
                  rights  of  Holder  as  set  forth  in  this  Warrant  against
                  impairment.  Without limiting the generality of the foregoing,
                  the Company will (a) not increase the par value of any Warrant
                  Shares above the amount  payable  therefor  upon such exercise
                  immediately  prior to such increase in par value, (b) take all
                  such action as may be necessary or  appropriate  in order that
                  the  Company  may  validly  and  legally  issue fully paid and
                  nonassessable   Warrant  Shares  upon  the  exercise  of  this
                  Warrant, and (c) use commercially reasonable efforts to obtain
                  all  such  authorizations,  exemptions  or  consents  from any
                  public regulatory body having  jurisdiction  thereof as may be
                  necessary  to enable the  Company to perform  its  obligations
                  under this Warrant.

                           Before  taking any action  which  would  result in an
                  adjustment  in the  number of  Warrant  Shares  for which this
                  Warrant is exercisable or in the Exercise  Price,  the Company
                  shall obtain all such authorizations or exemptions thereof, or
                  consents  thereto,   as  may  be  necessary  from  any  public
                  regulatory body or bodies having jurisdiction thereof.

                  f) Jurisdiction.  All questions  concerning the  construction,
         validity,  enforcement  and  interpretation  of this  Warrant  shall be
         determined in accordance with the provisions of the Purchase Agreement.

                                       11
<PAGE>

                  g)  Restrictions.  The Holder  acknowledges  that the  Warrant
         Shares  acquired upon the exercise of this Warrant,  if not registered,
         will  have  restrictions  upon  resale  imposed  by state  and  federal
         securities laws.

                  h) Nonwaiver and  Expenses.  No course of dealing or any delay
         or failure to exercise any right  hereunder on the part of Holder shall
         operate  as a waiver  of such  right or  otherwise  prejudice  Holder's
         rights,  powers  or  remedies,  notwithstanding  all  rights  hereunder
         terminate  on the  Termination  Date.  If  the  Company  willfully  and
         knowingly  fails to comply with any  provision of this  Warrant,  which
         results in any material damages to the Holder, the Company shall pay to
         Holder  such  amounts  as shall be  sufficient  to cover  any costs and
         expenses  including,  but not limited to,  reasonable  attorneys' fees,
         including  those  of  appellate  proceedings,  incurred  by  Holder  in
         collecting  any amounts due pursuant  hereto or in otherwise  enforcing
         any of its rights, powers or remedies hereunder.

                  i) Notices. Any notice,  request or other document required or
         permitted to be given or  delivered to the Holder by the Company  shall
         be delivered in accordance  with the notice  provisions of the Purchase
         Agreement.

                  j)  Limitation  of  Liability.  No  provision  hereof,  in the
         absence of any affirmative action by Holder to exercise this Warrant or
         purchase  Warrant  Shares,  and no enumeration  herein of the rights or
         privileges  of Holder,  shall give rise to any  liability of Holder for
         the  purchase  price of any  Common  Stock or as a  stockholder  of the
         Company,  whether  such  liability  is  asserted  by the  Company or by
         creditors of the Company.

                  k) Remedies. Holder, in addition to being entitled to exercise
         all rights  granted by law,  including  recovery  of  damages,  will be
         entitled to specific  performance of its rights under this Warrant. The
         Company agrees that monetary damages would not be adequate compensation
         for any loss incurred by reason of a breach by it of the  provisions of
         this  Warrant and hereby  agrees to waive the defense in any action for
         specific performance that a remedy at law would be adequate.

                  l) Successors  and Assigns.  Subject to applicable  securities
         laws,  this  Warrant and the rights and  obligations  evidenced  hereby
         shall inure to the benefit of and be binding upon the successors of the
         Company  and the  successors  and  permitted  assigns  of  Holder.  The
         provisions  of this  Warrant are  intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be  enforceable  by
         any such Holder or holder of Warrant Shares.

                  m)  Amendment.  This Warrant may be modified or amended or the
         provisions  hereof  waived with the written  consent of the Company and
         the Holder.

                  n)  Severability.  Wherever  possible,  each provision of this
         Warrant  shall be  interpreted  in such manner as to be  effective  and
         valid under  applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under  applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating   the  remainder  of  such  provisions  or  the  remaining
         provisions of this Warrant.

                                       12
<PAGE>

                  o)  Headings.  The  headings  used in this Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.

                              ********************

                                       13
<PAGE>

                  IN WITNESS WHEREOF,  the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  September __, 2004

                                  LJ INTERNATIONAL INC.

                                  By:
                                     -------------------------------------------
                                     Name:
                                     Title:

                                       14
<PAGE>

                               NOTICE OF EXERCISE

To:      LJ International Inc.

         (1) The undersigned  hereby elects to purchase  ________ Warrant Shares
of the Company  pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders  herewith payment of the exercise price in full,  together
with all applicable transfer taxes, if any.

         (2) Payment shall take the form of (check applicable box):

                  [ ] in lawful money of the United States; or

                  [ ] the  cancellation  of such number of Warrant  Shares as is
                  necessary,  in  accordance  with  the  formula  set  forth  in
                  subsection  3(d), to exercise this Warrant with respect to the
                  maximum number of Warrant Shares  purchasable  pursuant to the
                  cashless exercise procedure set forth in subsection 3(d).

         (3)  Please  issue a  certificate  or  certificates  representing  said
Warrant  Shares  in the  name of the  undersigned  or in such  other  name as is
specified below:

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

The Warrant Shares shall be delivered to the following:

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

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

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

         (4) Accredited Investor. The undersigned is an "accredited investor" as
defined  in  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended.

                                   [PURCHASER]

                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title:

                                   Dated:
                                          ---------------------------

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE  RECEIVED,  the  foregoing  Warrant and all rights  evidenced
thereby are hereby assigned to

                                                      whose address is
-----------------------------------------------------

------------------------------------------------------------------------.

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

                                              Dated:  ______________, _______

                 Holder's Signature:
                                     -----------------------------------
                 Holder's Address:
                                     -----------------------------------

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

Signature Guaranteed:
                     ----------------------------------------------

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}]]