Document:

LOGISTICAL SUPPORT, INC.
                          INVESTMENT BANKING AGREEMENT

Dated as of: May 5, 2005

Hunter World Markets, Inc.
9300 Wilshire Boulevard
Penthouse Suite
Beverly Hills, CA 90212

Ladies and Gentlemen:

The undersigned,  Logistical  Support,  Inc. (the  "Company"),  hereby agrees to
engage Hunter World Markets,  Inc.  ("Hunter") as its  investment  banker on the
terms and conditions as set forth in this letter agreement.

      1.    Terms.

            The Company hereby engages Hunter to act as its exclusive investment
banker for a period of one year. The scope of the investment  banking work shall
include an offering of up to $6,500,000  (the  "Offering"  and the period before
the closing of the Offering, the "Offering Term").

            Hunter reserves the right to raise up to an additional $4,000,000 in
either  PIPE  financing  or as Hunter's  exercise  of its  warrants on terms and
conditions to be approved by Hunter.

            Hunter shall not be obligated to sell any  securities as underwriter
and Hunter shall be engaged solely on a "best efforts basis."

      2.    Compensation.

            (a) Hunter  shall  receive a placement  fee of 8% on the  $6,500,000
financing.

            (b) Hunter shall receive a placement fee of 10% on any other funding
facilitated by Hunter including any PIPE financings or warrant exercises.

            (c) The  Parties  shall  mutually  agree on the  investment  banking
compensation  to Hunter for deals  other than this  offering,  which shall be no
less than customary investment banking fees.

            (d) In the event that Hunter has to give up options as a result of a
condition  of closing the  $6,500,000  financing,  the Company will issue Hunter
shares  of common  stock of the  Company  equal to a  cashless  exercise  of the
options  Hunter  relinquishes.  For example,  if Hunter's  options are priced at
$0.20 and the market price is $1.65,  the  difference  between the warrant price
and the  market  price is $1.45.  Multiplying  $1.45 by the  number  of  options
(3,000,000)  results in  $4,350,000,  which is then  divided by the market price
($1.65) which results in Hunter being  entitled to receive  2,636,363  shares of
the Company's common stock (the "Option  Shares").  The Option Shares shall have
piggyback registration rights.

                                       1
<PAGE>

      3.    Exclusivity.

            (a)  Hunter  will  advise  the  company  on  all  financial  matters
including  mergers  and  acquisitions,  subsequent  financing  transactions  and
listing on the Nasdaq or National  Exchanges.  Hunter will introduce the company
to its network of institutional investors.

            (b) The Company may not solicit  third party  finders,  brokers,  or
other consultants, during the Offering Term, without express written approval of
Hunter. During the Offering Term, the Company shall provide Hunter with the name
and other pertinent  information on any potential investor before accepting such
investment,  however the Company  shall at all times retain sole  discretion  to
accept such investment.

      4.    Right of  First Refusal. For a period of one  year after the closing
of the Offering,  Hunter shall  have the right of first  refusal  to act as sole
investment  banker  in the  underwriting  or  placement  financings  done by the
Company  and  offerings  of  the  Company's   securities  other  than  strategic
financings.  During such one year period,  the Company will provide  Hunter with
the terms of any  offering  of its  equity  securities  along with the terms and
conditions for underwriters or placement agents for such offering.  Hunter shall
have ten business days to exercise such right.

      5.    Representations, Warranties and Covenants of Hunter.

            Hunter represents, warrants and covenants as follows:

            (a) Hunter has the necessary  power to enter into this Agreement and
to consummate the transactions contemplated hereby.

            (b) The execution  and delivery by Hunter of this  Agreement and the
consummation  of the  transactions  contemplated  herein  will not result in any
violation  of, or be in  conflict  with,  or  constitute  a default  under,  any
agreement  or  instrument  to which  Hunter is a party or by which Hunter or its
properties are bound, or any judgment,  decree, order or, to Hunter's knowledge,
any statute,  rule or regulation  applicable  to Hunter.  This  Agreement,  when
executed and delivered by Hunter,  will constitute the legal,  valid and binding
obligations of Hunter,  enforceable in accordance with their  respective  terms,
except  to the  extent  that (i) the  enforceability  hereof or  thereof  may be
limited by bankruptcy,  insolvency,  reorganization,  moratorium or similar laws
from time to time in effect and  affecting  the rights of  creditors  generally,
(ii) the  enforceability  hereof or thereof is subject to general  principles of
equity, or (iii) the indemnification provisions hereof or thereof may be held to
violate public policy.

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<PAGE>

            (c) Hunter shall use all reasonable efforts to determine (i) whether
the Investor is an Accredited  Investor and (ii) that any information  furnished
by the Investor is true and accurate.  Hunter shall have no obligation to insure
that any check,  note,  draft or other  means of  payment  for the Units will be
honored, paid or enforceable against the Investor in accordance with its terms.

            (d)  Hunter  is a  member  of  the  NASD,  and  is  a  broker-dealer
registered  as such  under  the  Securities  Exchange  Act of 1934 and under the
securities  laws of the  states in which the Units  will be  offered  or sold by
Hunter,  unless an exemption for such state registration is available to Hunter.
Hunter is in compliance  with all material rules and  regulations  applicable to
Hunter generally and applicable to Hunter's participation in the Offering.

      6.    Representations and Warranties of the Company.

            The Company represents and warrants as follows:

            (a) The  execution,  delivery and  performance of this Agreement has
been or will be duly and validly  authorized by the Company and will be, a valid
and  binding  agreement  of the  Company,  enforceable  in  accordance  with its
respective  terms,  except to the extent that (i) the  enforceability  hereof or
thereof may be limited by bankruptcy, insolvency, reorganization,  moratorium or
similar laws from time to time in effect and  affecting  the rights of creditors
generally,  (ii) the  enforceability  hereof or  thereof  is  subject to general
principles of equity or (iii) the  indemnification  provisions hereof or thereof
may be held to violate  public policy.  The securities to be issued  pursuant to
the  transactions  contemplated by this Agreement have been duly authorized and,
when  issued  and paid for in  accordance  with (x) this  Agreement  and (y) the
certificates/instruments representing such securities, will be valid and binding
obligations  of the Company,  enforceable  in accordance  with their  respective
terms,  except to the extent that (1) the enforceability  thereof may be limited
by bankruptcy, insolvency, reorganization,  moratorium or similar laws from time
to time in effect and affecting the rights of creditors  generally,  and (2) the
enforceability thereof is subject to general principles of equity. All corporate
action  required  to be taken for the  authorization,  issuance  and sale of the
securities has been duly and validly taken by the Company.

            (b)  The  Company  has a duly  authorized,  issued  and  outstanding
capitalization as set forth in any offering document. The Company is not a party
to or bound by any instrument,  agreement or other arrangement  providing for it
to issue any  capital  stock,  rights,  warrants,  options or other  securities,
except for this Agreement,  the agreements  described  herein or as set forth in
any offering  document.  All issued and  outstanding  securities of the Company,
have  been  duly   authorized   and  validly  issued  and  are  fully  paid  and
non-assessable;  the holders  thereof have no rights of rescission or preemptive
rights with respect thereto and are not subject to personal  liability solely by
reason of being  security  holders;  and none of such  securities  was issued in
violation  of the  preemptive  rights  of any  holders  of any  security  of the
Company.

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<PAGE>

            (c) The  securities to be offered as well as issuable have been duly
authorized  and when issued and paid for in accordance  with this  Agreement and
the  certificates/instruments  representing  such common stock,  will be validly
issued,  fully-paid and non-assessable;  the holders thereof will not be subject
to personal  liability  solely by reason of being such holders;  such securities
are not and will not be  subject to the  preemptive  rights of any holder of any
security of the Company.

            (d) All information and statements  provided directly by the Company
in writing to prospective  investors  introduced to the Company by Hunter in any
offer will be true and correct as of the time such statement was made.

            (e) Any written offering  material  prepared by the Company will not
be  misleading  or  violative of the  anti-fraud  provisions  of the  Securities
Exchange Act of 1934.

            (f) The financial  statements presented to Hunter fairly reflect the
financial  condition of the Company and the results of its  operations at a time
and for the periods covered by the financial statements.

      7.    Certain Covenants and Agreements of the Company.

            The  Company  covenants  and agrees at its  expense  and without any
expense to Hunter as follows:

            (a) To ensure that any transactions between or among the Company, or
any of its officers,  directors and affiliates be on terms and  conditions  that
are no less favorable to the Company,  than the terms and conditions  that would
be available in an "arm's length" transaction with an independent third party.

            (b) For a period of 36 months,  beginning  on April ___,  2005,  the
Company agrees that the Company, its employees, agents and representatives shall
not knowingly, either directly or indirectly, contact, solicit, employ or engage
or attempt to contact,  solicit, enter into discussions with or contract with in
any  capacity,  any  person  introduced  to the  Company by Hunter and listed on
Schedule 7(b) or any employees, agents, or representatives of Hunter.

      8.    Indemnification.

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<PAGE>

            (a) The Company hereby agrees that it will indemnify and hold Hunter
and each  officer,  director,  shareholder,  employee,  attorneys,  accountants,
agents or representative of Hunter, and each person  controlling,  controlled by
or under  common  control  with  Hunter  within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the  Securities  Exchange Act of 1934 or
the  SEC's  rules  and  regulations   promulgated  thereunder  (the  "Rules  and
Regulations"),  harmless  from and  against  any and all  loss,  claim,  damage,
liability,  cost or expense whatsoever  (including,  but not limited to, any and
all  reasonable  legal fees and other  expenses  and  disbursements  incurred in
connection with investigating, preparing to defend or defending any action, suit
or proceeding, including any inquiry or investigation,  commenced or threatened,
or any claim whatsoever or in appearing or preparing for appearance as a witness
in any action,  suit or  proceeding,  including  any inquiry,  investigation  or
pretrial proceeding such as a deposition  including attorneys' fees in the event
of a  breach  of this  representation  and  warranty)  to which  Hunter  or such
indemnified  person of Hunter may become  subject  under the  Securities  Act of
1933, the Securities  Exchange Act of 1934,  the Rules and  Regulations,  or any
other federal or state law or regulation,  common law or otherwise,  arising out
of or based  upon (i) any untrue  statement  or alleged  untrue  statement  of a
material fact contained in (a) this Agreement, (b) any written offering material
prepared  by the Company  including  the PPM (except  those  written  statements
relating to Hunter given by an indemnified  person for inclusion  therein),  (c)
any  application  or other  document  or written  communication  executed by the
Company or based upon written information  furnished by the Company filed in any
jurisdiction  in order to qualify the common  stock and the  warrants  under the
securities laws thereof, or any state securities  commission or agency; (ii) the
omission or alleged omission from documents described in clauses (a), (b) or (c)
above of a material fact required to be stated  therein or necessary to make the
statements  therein not misleading;  or (iii) the breach of any  representation,
warranty,  covenant  or  agreement  made by the Company in this  Agreement.  The
Company further agrees that upon demand by an indemnified person, at any time or
from time to time, it will promptly  reimburse such  indemnified  person for any
loss, claim, damage,  liability, cost or expense actually and reasonably paid by
the  indemnified  person as to which the  Company  has  indemnified  such person
pursuant hereto.  Notwithstanding the foregoing provisions of this Section 9(a),
any  such  payment  or  reimbursement  by  the  Company  of  fees,  expenses  or
disbursements  incurred by an  indemnified  person in any  proceeding in which a
final  judgment by a court of competent  jurisdiction  (after all appeals or the
expiration  of time to  appeal) is entered  against  Hunter or such  indemnified
person as a direct result of Hunter or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.

            (b) Hunter hereby agrees that it will indemnify and hold the Company
and each  officer,  director,  shareholder,  employee or  representative  of the
Company, and each person controlling, controlled by or under common control with
the Company  within the meaning of Section 15 of the  Securities  Act of 1933 or
Section 20 of the Securities  Exchange Act of 1934 or the Rules and Regulations,
harmless from and against any and all loss, claim,  damage,  liability,  cost or
expense whatsoever (including,  but not limited to, any and all reasonable legal
fees  and  other  expenses  and   disbursements   incurred  in  connection  with
investigating,  preparing to defend or defending any action, suit or proceeding,
including any inquiry or  investigation,  commenced or threatened,  or any claim
whatsoever  or in  appearing  or preparing  for  appearance  as a witness in any
action,  suit or proceeding,  including any inquiry,  investigation  or pretrial
proceeding such as a deposition) to which the Company or such indemnified person
of the  Company  may  become  subject  under  the  Securities  Act of 1933,  the
Securities Exchange Act of 1934, the Rules and Regulations, or any other federal
or state law or  regulation,  common law or  otherwise,  arising out of or based
upon (i) the conduct of Hunter or its officers,  employees or representatives in
acting  as  placement  agent  for  the  Offering  or  (ii)  the  breach  of  any
representation,   warranty,  covenant  or  agreement  made  by  Hunter  in  this
Agreement.

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<PAGE>

            (c)  Promptly  after  receipt by an  indemnified  party of notice of
commencement  of any action  covered by  Section  9(a) or 9(b),  the party to be
indemnified shall,  within five (5) business days, notify the indemnifying party
of the commencement  thereof; the omission by one indemnified party to so notify
the  indemnifying  party  shall  not  relieve  the  indemnifying  party  of  its
obligation to indemnify any other  indemnified  party that has given such notice
and shall not relieve the  indemnifying  party of any liability  outside of this
indemnification  if not  materially  prejudiced  thereby.  In the event that any
action is brought against the indemnified  party, the indemnifying party will be
entitled to participate  therein and, to the extent it may desire, to assume and
control  the  defense  thereof  with  counsel  chosen by it which is  reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such  indemnified  party of its election to so assume the defense  thereof,  the
indemnifying  party  will not be liable to such  indemnified  party  under  such
Section 9(a) or 9(b) for any legal or other  expenses  subsequently  incurred by
such  indemnified  party  in  connection  with  the  defense  thereof,  but  the
indemnified  party  may,  at its own  expense,  participate  in such  defense by
counsel  chosen by it,  without,  however,  impairing the  indemnifying  party's
control  of  the  defense.   Subject  to  the  proviso  of  this   sentence  and
notwithstanding  any other  statement  to the  contrary  contained  herein,  the
indemnified  party or  parties  shall  have the right to choose its or their own
counsel  and  control  the  defense  of any  action,  all at the  expense of the
indemnifying  party if, counsel to the indemnifying  party or parties shall have
reasonably  concluded  that  there  may  be  defenses  available  to it  or  the
indemnified  party or them  which  are  different  from or  additional  to those
available  to one  or  all  of the  indemnifying  parties  (in  which  case  the
indemnifying  parties  shall not have the right to direct  the  defense  of such
action on behalf of the  indemnified  party or parties),  in any of which events
such  fees  and  expenses  of one  additional  counsel  shall  be  borne  by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially  similar or related
actions in the same jurisdiction  arising out of the same general allegations or
circumstance,  be liable for the  reasonable  fees and expenses of more than one
separate  firm of attorneys  at any time for all such  indemnified  parties.  No
settlement of any action or  proceeding  against an  indemnified  party shall be
made without the consent of the indemnifying party.

            (d) In order to  provide  for just  and  equitable  contribution  in
circumstances in which the indemnification  provided for in Section 9(a) or 9(b)
is due in accordance  with its terms but is for any reason held by a court to be
unavailable  on grounds of policy or  otherwise,  the Company  and Hunter  shall
contribute to the aggregate losses,  claims,  damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such  proportion so that Hunter
shall be responsible  for such percent of the aggregate of such losses,  claims,
damages and liabilities as shall equal the percentage of the gross proceeds paid
to Hunter  and the  Company  shall be  responsible  for the  balance;  provided,
however,  that no  person  guilty of  fraudulent  misrepresentation  within  the
meaning of Section  11(f) of the  Securities  Act of 1933 shall be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  For purposes of this Section 9(d),  any person  controlling,
controlled  by or under common  control with Hunter,  or any partner,  director,
officer,  employee,  representative or any agent of any thereof,  shall have the
same rights to contribution as Hunter and each person controlling, controlled by
or under common control with the Company within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the Securities  Exchange Act of 1934 and
each officer of the Company and each director of the Company shall have the same
rights to contribution as the Company.  Any party entitled to contribution will,
promptly  after  receipt  of  notice  of  commencement  of any  action,  suit or
proceeding  against such party in respect of which a claim for  contribution may
be made against the other party under this Section 9(d),  notify such party from
whom contribution may be sought,  but the omission to so notify such party shall
not relieve the party from whom  contribution  may be sought from any obligation
they may have hereunder or otherwise if the party from whom  contribution may be
sought is not  materially  prejudiced  thereby.  The indemnity and  contribution
agreements  contained in this Section 9 shall remain operative and in full force
and  effect  regardless  of  any  investigation  made  by or on  behalf  of  any
indemnified person or any termination of this Agreement.

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<PAGE>

      9.    Non-Circumvention.

            Pursuant to this  Agreement,  it is  contemplated  that Hunter shall
supply to the Company and its officers  and  directors  and its counsel  certain
information  concerning investors and other customers of Hunter.  Except for any
prior contracts  established  prior to the date of this  Agreement,  neither the
Company,  nor any of its majority  owned or controlled  entities or any of their
officers and directors or its counsel shall,  without the prior written  consent
of Hunter,  contact any of such investors and other customers listed on Schedule
9 for the purpose of an  investment in the Company or an investment in any other
entity or enterprise controlled by the Company.

            In the  event  that  the  Company  or any of its  majority  owned or
controlled  entities  or any of its or  their  officers  and  directors  and its
counsel  enters into an agreement  with any investor or other customer of Hunter
referenced  above either (i) during the  Offering  Term or (ii) within two years
after the Offering Term, regarding a Transaction and completes such Transaction,
Hunter shall be entitled to payment at the closing of such  Transaction  of five
percent (5%) of the  Aggregate  Consideration  with respect to such  Transaction
(excluding  the offerings  pursuant to which  amounts  payable to Hunter are set
forth  herein).  "Transaction"  shall be defined as any direct or indirect sale,
transfer, conveyance, exchange, financing, sale, transfer, conveyance, exchange,
financing,  investment,  trade,  exchange or other change in legal or beneficial
ownership of any property,  whether  accomplished  by an issuance or purchase of
assets of securities, merger, consolidation, management contract, joint venture,
partnership,  trade or exchange of assets or stock or otherwise.  The "Aggregate
Consideration"  in a Transaction for purposes of determining the  aforementioned
fees  shall  mean (x) the  aggregate  amount of  consideration  received  by the
subject  party  and/or its  shareholders  (treating  any shares  issuable  under
exercise of options,  warrants or other rights of conversion as outstanding) and
the  implied  value of any  equity  interest  retained  by the  subject  party's
shareholders  and the value of any assets retained by the subject party plus (y)
the  amount of any debt  assumed  or  repaid  or  preferred  stock  redeemed  or
remaining  outstanding in connection with a Transaction (i.e. deferred payments,
covenants not to compete, consulting agreements or traded/exchange properties).

      10.   Payment of Expenses.

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<PAGE>

            The Company  hereby agrees to bear all of the expenses in connection
with the Offering,  including,  but not limited to the  following:  filing fees,
printing and  duplicating  costs,  advertisements,  European and U.S.  road show
costs  and  expenses,   postage  and  mailing   expenses  with  respect  to  the
transmission of offering  materials,  registrar and transfer agent fees,  escrow
agent fees and expenses, fees of the Company's counsel and accountants,  fees of
Hunter's counsel in the amount of $15,000 and issue and transfer taxes, if any.

      11.   Conditions of Each Closing.

            Each closing shall be held at the offices of Company's counsel or as
otherwise  determined  by Hunter  and the  Company.  The  obligations  of Hunter
hereunder shall be subject to the continuing accuracy of the representations and
warranties  of the Company  herein as of the date hereof and as of each  closing
date  with  respect  to the  Company  as if it had  been  made on and as of such
closing date;  the accuracy on and as of each closing date of the  statements of
the  officers of the Company made  pursuant to the  provisions  hereof;  and the
performance  by the  Company  on and as of each  closing  of its  covenants  and
obligations hereunder and to the following further conditions:

            (a) At or prior to each closing,  counsel for Hunter shall have been
furnished  such  documents,  certificates  and  opinions as they may  reasonably
require  for the  purpose of  enabling  them to review or pass upon the  matters
referred to in this Agreement and the offering materials or in order to evidence
the  accuracy,  completeness  or  satisfaction  of any  of the  representations,
warranties or conditions herein contained.

            (b) At and  prior to each  closing,  (i)  there  shall  have been no
material   adverse  change  in  the  condition  or  prospects  or  the  business
activities,  financial or otherwise,  of the Company from the latest dates as of
which such  condition is set forth in the offering  materials;  (ii) there shall
have been no transaction,  not in the ordinary course of business,  entered into
by the Company  which has not been  disclosed  in the  offering  materials or to
Hunter in writing;  (iii)  except as set forth in the  offering  materials,  the
Company shall not be in default under any provision of any  instrument  relating
to any  outstanding  indebtedness  for which a waiver or extension  has not been
otherwise  received;  (iv) except as set forth in the  offering  materials,  the
Company shall not have issued any  securities  (other than those to be issued as
provided in the offering materials) or declared or paid any dividend or made any
distribution of its capital stock of any class and there shall not have been any
change in the indebtedness (long or short term) or liabilities or obligations of
the Company  (contingent or otherwise);  (v) no material amount of the assets of
the Company  shall have been  pledged or  mortgaged,  except as indicated in the
offering materials; and (vi) no action, suit or proceeding, at law or in equity,
against the Company or affecting any of its  properties  or businesses  shall be
pending or  threatened  before or by any court or  federal or state  commission,
board  or  other  administrative  agency,   domestic  or  foreign,   wherein  an
unfavorable  decision,  ruling or finding could materially  adversely affect the
businesses, prospects or financial condition or income of the Company, except as
set forth in the offering materials.

                                       8
<PAGE>

            (c) At each closing, Hunter shall have received a certificate of the
Company  signed  by its  chief  executive  officer,  dated as of the  applicable
closing date, to the effect that the  conditions set forth in  subparagraph  (b)
above have been  satisfied and that,  as of the  applicable  closing  date,  the
representations  and  warranties  of the Company  set forth  herein are true and
correct.

      12.   Miscellaneous.

            (a) This  Agreement  may be executed in any number of  counterparts,
each of which shall be deemed to be an  original,  but all which shall be deemed
to be one and the same instrument.

            (b) Any notice  required or permitted to be given hereunder shall be
given in writing  and shall be deemed  effective  when  deposited  in the United
States mail, postage prepaid, or when received if personally delivered or faxed,
addressed as follows:

             To Hunter:

             Hunter World Markets, Inc.
             9300 Wilshire Boulevard
             Penthouse Suite
             Beverly Hills, CA 90212
             Attention: Todd Ficeto
             Telephone: (310) 286-2211
             Fax: (310) 286-2373

             with a copy to:

             Shustak Jalil & Heller
             400 Park Avenue
             New York, New York 10022
             Attention:  James P. Jalil, Esq.
             Telephone: (212) 688-5900
             Fax: (212) 688-6151

             To the Company:

             Logistical Support, Inc.
             19734 Dearborn Street,
             Chatsworth, California 91311
             Attention:  Bruce Littell
             Telephone:
             Facsimile:

             with a copy to:

             Richardson & Patel LLP
             10900 Wilshire Boulevard, Suite 500
             Los Angeles, CA 90024
             Attention: Nimish Patel
             Telephone: (310) 208-1182
             Fax: (310) 208-1154

                                       9
<PAGE>

or to such other address of which written notice is given to the others.

            (c) All questions concerning the construction, validity, enforcement
and  interpretation  of this Agreement shall be governed by the internal laws of
the State of California,  without giving effect to any choice of law or conflict
of law provision.

            (d) This  Agreement  contain  the entire  understanding  between the
parties  hereto  and may not be  modified  or amended  except by a writing  duly
signed by the party against whom enforcement of the modification or amendment is
sought.

            (e) If any provision of this  Agreement  shall be held to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.

                                       10
<PAGE>

      IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as of
the date first written above.

                                       LOGISTICAL SUPPORT, INC.
                                       a Utah corporation

                                       /s/ Bruce Littell
                                       -----------------
                                       By:      Bruce Littell
                                       Its:     Chief Executive Officer

AGREED AND ACCEPTED

HUNTER WORLD MARKETS, INC.
A California corporation

         /s/ Todd Ficeto
         ---------------
By:      Todd Ficeto
Its:     President and CEO

                                       11Top Eagle Holdings Limited
      Room 3301-3302, China Resources Building, 26 Harbour Road, Hong Kong
                    Tel: (852) 2827 2268 Fax: (852) 2827 5549

                                                As of December 14, 2004

Tengtu International Corp.
236 Avenue Road
Toronto, Ontario M5R 2J4
Canada
Attention:  Mr. Bill Ballard

            Re:   Amendment of Floating Convertible Debenture

Ladies and Gentlemen:

      We refer to the Floating Convertible Debenture Due December 15, 2004 (the
"2004 Debenture") entered into between Tengtu International Corp (the "Company")
and Top Eagle Holdings Limited (the "Top Eagle") on December 15, 2003.

      On December 15, 2004, pursuant to the terms of the 2004 Debenture, payment
from the Company of the entire outstanding principal of US$1,000,000 (the
"Outstanding Principal Amount") and accrued but unpaid interest on the 2004
Debenture is due to Top Eagle. The purpose of this letter (this "Letter") is to
document the parties' agreement regarding the amendment of the 2004 Debenture.
In this regard, the parties agree as follows:

1. Definitions. Capitalized terms used in this Letter without definition shall
have the meanings set forth in the 2004 Debenture.

2. Amendment and Restatement of 2004 Debenture. Simultaneously with the
execution of this Letter the Company is executing and delivering to Top Eagle an
Amended and Restated Debenture in the form of Exhibit A attached hereto (the
"Amended Debenture") and Top Eagle is returning to the Company the 2004
Debenture marked "cancelled."

3. The Closing. The Closing of the transactions contemplated by this Letter
Agreement shall take place at the offices of the Company at 10:00 a.m. Pacific
Standard Time, on December 14, 2004 or at such other time and place as the
Company and Top Eagle mutually agree upon (the "Closing"). At the Closing:

<PAGE>

      3.1 the Company shall deliver to Top Eagle the Amended Debenture, duly
executed by an authorized representative of the Company; and

      3.2 Top Eagle shall deliver to the Company the 2004 Debenture, duly
cancelled.

4. Representation and Warranties.

      4.1 Each of the Company and Top Eagle (a) represents and warrants to the
other party that, except for matters that have been publicly disclosed as part
of the applicable party's periodic or other filings to the U.S. Securities and
Exchange Commission (the "SEC") (the "Disclosed Exceptions"), the
representations and warranties made by such party in the Convertible Debenture
and Warrant Purchase Agreement, dated December 21, 1999 (the "Purchase
Agreement") are true and correct as of the date hereof and as of the Closing,
and (b) agrees that the terms of each such representation and warranty (as
modified by the Disclosed Exceptions) shall be deemed to be incorporated herein
by reference and made a part hereof.

      4.2 The Company further represents and warrants that the Disclosed
Exceptions, as described in each statement, report, registration statement,
definitive proxy statement, and other filing filed with the SEC by the Company
(collectively, the "SEC Reports"), are true and correct as of the Closing, and
further that at the time such matters were disclosed, the disclosures made by
the Company in respect of the Disclosed Exceptions in such SEC Reports contained
no untrue statements of a material fact and did not omit to state a material
fact necessary to make the statements in respect of the Disclosed Exceptions
made therein, in light of the circumstances under which they were made, not
misleading.

5. Conditions to Closing. Top Eagle's performance of its obligations under
paragraph 3.2 above are subject to the Company's satisfaction (or Top Eagle's
waiver) of the following conditions:

      5.1 The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Letter that are required to be
performed or complied with by it on or before the Closing and

      5.2 The Company shall have obtained all approvals, consents and
qualifications necessary to complete the transactions described herein,
including without limitation approval, if required, from the Company's
shareholders, directors, and any requisite government or third-party.

6. Agreement on Use of Proceeds from Future Financing Activities. If the Company
consummates or receives additional debt or equity financing (in the form of cash
or marketable securities) at any time following the Closing and prior to the
Company's repayment in full of the outstanding principal and accrued but unpaid
interest on the Amended Debenture (a "Qualified Financing"), the Company shall
use at least 50% of the proceeds from such Qualified Financing to reduce or pay
in full the balance of the then outstanding principal and accrued but unpaid
interest on the Amended Debenture in accordance with the mechanics set forth
therein. In connection with the foregoing, the Company shall promptly provide to
Top Eagle copies of such documentation related to the Qualified Financing as Top
Eagle reasonably requests. For the purposes of this Letter and the 2004
Debenture, the term "Qualified Financing" does not include any private placement
of equity securities of the Company which is consummated on or prior to April
15, 2005.

<PAGE>

7. Relationship to Purchase Agreement; Investor Rights Agreement. The provisions
of the Purchase Agreement and the Investor Rights Agreement are and shall remain
in full force and effect and, nothing in this Letter shall be construed as an
amendment or waiver of any of the rights or obligations of the parties
thereunder.

8. Costs, Expenses. Each party hereto shall bear its own costs in connection
with the preparation, execution and delivery of this Letter and the issuance of
the Amended Debenture, provided, however, that the Company shall reimburse Top
Eagle for the reasonable fees and expenses of one counsel for Top Eagle not to
exceed US$3,750.

9. Severability. If one or more provisions of this Letter are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Letter and the balance of the Letter shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.

10. Governing Law. This Letter shall be governed by, and construed in accordance
with, the laws of New York, without regard to the conflicts of law principles
thereof.

11. Counterparts. This Letter may be executed in any number of identical
counterparts, each of which will constitute an original but all of which
together will constitute one instrument.

            If the foregoing accurately reflects your present intent, please
execute this letter where indicated below and return to Top Eagle a
fully-executed original.

                              Very truly yours,

                              Top Eagle Holdings Limited

                              By: /s/ Yuen Wing Shing
                                  ---------------------------------------------
                                  Name: Yuen Wing Shing
                                  Title: Director

Accepted and agreed as of this 14th day of December, 2004:

Tengtu International Corp.

By: /s/ John Watt
    ----------------
Name:  John Watt
Title: President

<PAGE>

                                    EXHIBIT A

                            Form of Amended Debenture

                              AMENDED AND RESTATED
                         FLOATING CONVERTIBLE DEBENTURE

         NEITHER  THIS  SECURITY  NOR THE  SECURITIES  ISSUABLE  UPON
         CONVERSION  HEREOF  HAVE  BEEN  REGISTERED  WITH THE  UNITED
         STATES SECURITIES AND EXCHANGE  COMMISSION OR THE SECURITIES
         COMMISSION OF ANY STATE OR CANADIAN  PROVINCE,  OR UNDER THE
         SECURITIES  ACT OF  1933,  AS  AMENDED  (THE  "ACT").  THESE
         SECURITIES ARE  RESTRICTED  AND MAY NOT BE OFFERED,  RESOLD,
         PLEDGED OR  TRANSFERRED  EXCEPT AS  PERMITTED  UNDER THE ACT
         PURSUANT  TO  AN  EFFECTIVE  REGISTRATION  STATEMENT  OR  AN
         EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

As of December 15, 2004                                             US$1,000,000

                           TENGTU INTERNATIONAL CORP.

FLOATING CONVERTIBLE DEBENTURE DUE JULY 31, 2005

            THIS DEBENTURE is issued by TENGTU INTERNATIONAL CORP., a
corporation organized and existing under laws of the State of Delaware (the
"Company"), and is designated as its Floating Convertible Debenture Due July 31,
2005.

            FOR VALUE RECEIVED, the Company promises to pay to TOP EAGLE
HOLDINGS LIMITED, or its permitted assigns (the "Holder"), the principal sum of
One Million Dollars (US$1,000,000.00) in the following installments:

            Date                                      Principal Payment
            ----                                      -----------------
            February 15, 2005                         US$500,000
            July 31, 2005 (the Maturity Date")        US$500,000

            Notwithstanding the foregoing repayment schedule, within ten (10)
days following the closing of a Qualified Financing, the Company shall pay to
Top Eagle (the "Qualified Financing Payment") in cash an amount equal to the
lesser of (i) 50% of the value of the proceeds received by the Company in
connection with the Qualified Financing, and (ii) the entire principal and
accrued but unpaid interest on the Amended and Restated Debenture (the "Amended
Debenture") outstanding as of the date of the Qualified Financing Payment.

                                       1
<PAGE>

            The Company shall pay interest on the principal sum outstanding from
time to time quarterly in arrears at the per annum rate equal to the best
lending rate of The Hongkong and Shanghai Banking Corporation (as in effect from
time to time) plus two percent (2%) (the "Initial Interest Rate"). Accrual of
interest shall commence on the first business day to occur in Hong Kong after
December 15, 2004 and continue until payment in full of the principal sum of
this Debenture has been made or duly provided for. Quarterly interest payments
shall be due and payable commencing with March 15, 2005. If any interest payment
date or applicable Maturity Date is not a business day in the State of New York,
then such payment shall be made on the next succeeding business day. In the
event that the principal sum of this Debenture, or any other sum due hereunder,
is not paid in full when due and payable, interest shall continue to accrue on
the balance of any unpaid principal sum and any other such amount until such
amounts are paid in full at the same rate as the Initial Interest Rate plus five
percent (5%) or the highest rate permissible under applicable law, whichever is
lower.

            Accrued interest on this Debenture is payable in cash at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder from time to time. Subject to the provisions of Paragraphs 3 and 4
below, the Company will pay the principal of and any accrued but unpaid interest
due on this Debenture as provided herein, less any amounts required by law to be
deducted, to the registered holder of this Debenture as of the tenth day prior
to the applicable due date and addressed to such holder at the last address
appearing on the Debenture Register. The forwarding of such check, or the
required number of shares of Common Stock of the Company, US$0.01 par value per
share (the "Common Stock"), determined pursuant to the provisions of Paragraph 4
below, shall constitute a payment of principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on this Debenture
to the extent of the sum represented by such check or the equivalent conversion
price value of such shares of Common Stock (as determined in accordance with
Paragraph 4 below) plus any amounts so deducted.

            As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

            (a) The term "Company" includes any corporation which shall succeed
      to or assume the obligations of the Company hereunder.

            (b) The term "Common Stock" includes all stock of any class or
      classes (however designated) of the Company, authorized on or after the
      date hereof, the holders of which shall have the right, without limitation
      as to amount, either to all or to a share of the balance of current
      dividends and liquidating dividends after the payment of dividends and
      distributions on any shares entitled to preference, and the holders of
      which shall ordinarily, in the absence of contingencies, be entitled to
      vote for the election of a majority of directors of the Company (even
      though the right so to vote has been suspended by the happening of such a
      contingency).

                                       2
<PAGE>

            (c) The term "Qualified Financing" means a debt or equity financing
      consummated by the Company that closes at any time following the date
      hereof and prior to the Company's repayment in full of the outstanding
      principal and accrued but unpaid interest on this Debenture. For the
      purposes hereof, the term "Qualified Financing" does not include any
      private placement of equity securities of the Company which is consummated
      on or prior to April 15, 2005.

            This Debenture is subject to the following additional provisions:

            1. THE COMPANY SHALL BE ENTITLED TO WITHHOLD FROM ALL PAYMENTS OF
PRINCIPAL OF, AND INTEREST ON, THIS DEBENTURE ANY AMOUNTS REQUIRED TO BE
WITHHELD UNDER THE APPLICABLE PROVISIONS OF THE UNITED STATES INCOME TAX LAWS OR
OTHER APPLICABLE LAWS AT THE TIME OF SUCH PAYMENTS, AND THE HOLDER SHALL EXECUTE
AND DELIVER ALL REASONABLY REQUIRED DOCUMENTATION IN CONNECTION THEREWITH.

            2. THIS DEBENTURE HAS BEEN ISSUED SUBJECT TO INVESTMENT
REPRESENTATIONS OF THE ORIGINAL PURCHASER HEREOF AND MAY BE TRANSFERRED OR
EXCHANGED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND OTHER APPLICABLE STATE AND FOREIGN SECURITIES LAWS. THE HOLDER SHALL
DELIVER WRITTEN NOTICE TO THE COMPANY OF ANY PROPOSED TRANSFER OF THIS
DEBENTURE. IN THE EVENT OF ANY PROPOSED TRANSFER OF THIS DEBENTURE, THE COMPANY
MAY REQUIRE, PRIOR TO ISSUANCE OF A NEW DEBENTURE IN THE NAME OF SUCH OTHER
PERSON, THAT IT RECEIVE REASONABLE TRANSFER DOCUMENTATION INCLUDING LEGAL
OPINIONS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT THE
ISSUANCE OF THE DEBENTURE IN SUCH OTHER NAME DOES NOT AND WILL NOT CAUSE A
VIOLATION OF THE ACT OR ANY APPLICABLE STATE OR FOREIGN SECURITIES LAWS. PRIOR
TO DUE PRESENTMENT FOR TRANSFER OF THIS DEBENTURE, THE COMPANY AND ANY AGENT OF
THE COMPANY MAY TREAT THE PERSON IN WHOSE NAME THIS DEBENTURE IS DULY REGISTERED
ON THE COMPANY'S DEBENTURE REGISTER AS THE OWNER HEREOF FOR THE PURPOSE OF
RECEIVING PAYMENT AS HEREIN PROVIDED AND FOR ALL OTHER PURPOSES, WHETHER OR NOT
THIS DEBENTURE IS OVERDUE, AND NEITHER THE COMPANY NOR ANY SUCH AGENT SHALL BE
AFFECTED BY NOTICE TO THE CONTRARY. THIS DEBENTURE HAS BEEN EXECUTED AND
DELIVERED PURSUANT TO THE LETTER AGREEMENT DATED AS OF DECEMBER 14, 2004 BETWEEN
THE COMPANY AND THE ORIGINAL HOLDER (AS AMENDED, SUPPLEMENTED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "LETTER AGREEMENT"), AND IS SUBJECT TO THE TERMS
AND CONDITIONS OF THE LETTER AGREEMENT, WHICH ARE BY THIS REFERENCE,
INCORPORATED HEREIN AND MADE A PART HEREOF. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH FOR SUCH TERMS IN THE
LETTER AGREEMENT.

                                       3
<PAGE>

            3. COMMENCING ON THE DATE HEREOF, THE HOLDER OF THIS DEBENTURE IS
ENTITLED, AT ITS OPTION, TO CONVERT THE PRINCIPAL AMOUNT OF THIS DEBENTURE,
TOGETHER WITH ACCRUED BUT UNPAID INTEREST, INTO SHARES OF COMMON STOCK OF THE
COMPANY (THE "CONVERSION SHARES"). THE HOLDER MAY CONVERT UP TO THE ENTIRE
PRINCIPAL AMOUNT, TOGETHER WITH ACCRUED BUT UNPAID INTEREST, OR ANY PORTION
THEREOF, AT A CONVERSION PRICE FOR EACH SHARE OF COMMON STOCK OF US$1.50 (THE
"BASE CONVERSION PRICE").

            4. THE ENTIRE UNPAID PRINCIPAL AMOUNT OF THIS DEBENTURE AND ACCRUED
INTEREST THEREON OUTSTANDING ON THE MATURITY DATE SHALL, AT THE OPTION OF THE
HOLDER, BE CONVERTED INTO COMMON STOCK ON SUCH DATE AT A CONVERSION PRICE EQUAL
TO THE MARKET PRICE MINUS AN AMOUNT EQUAL TO TWENTY PERCENT (20%) OF SUCH MARKET
PRICE (THE "DEFAULT CONVERSION PRICE") (THE DEFAULT CONVERSION PRICE AND THE
BASE CONVERSION PRICE ARE COLLECTIVELY REFERRED TO AS THE "CONVERSION PRICE");
PROVIDED, HOWEVER, THAT UNDER NO CIRCUMSTANCES CAN THE NUMBER OF CONVERSION
SHARES EXCEED 50.1% OF THE COMMON STOCK OUTSTANDING AS OF THE DATE OF
CONVERSION. FOR PURPOSES OF THIS PARAGRAPH 4, "MARKET PRICE" MEANS THE AVERAGE
CLOSING PRICE FOR SHARES OF THE COMMON STOCK FOR THE TWENTY (20) TRADING DAYS
PRIOR TO THE MATURITY DATE. IN THE EVENT THAT SHARES OF THE COMMON STOCK HAVE
NOT BEEN TRADED DURING SUCH TWENTY (20) DAY PERIOD, THE "MARKET PRICE" SHALL
MEAN THE AVERAGE CLOSING PRICE FOR SHARES OF THE COMMON STOCK FOR ANY TWENTY
(20) CONSECUTIVE TRADING DAYS DURING THE SIX (6) MONTH PERIOD IMMEDIATELY PRIOR
TO THE MATURITY DATE; AND, PROVIDED, FURTHER, THAT, IF THERE HAS BEEN NO SUCH
TRADING ACTIVITY DURING SUCH SIX (6) MONTH PERIOD, THE HOLDER AND THE COMPANY
SHALL DISCUSS IN GOOD FAITH A MUTUALLY SATISFACTORY MECHANISM FOR FORMULATING
THE "MARKET PRICE". THE NUMBER OF SHARES OF COMMON STOCK AND THE AMOUNT OF EACH
CONVERSION PRICE ARE SUBJECT TO ADJUSTMENT AS PROVIDED HEREIN.

                                       4
<PAGE>

            5.    (A) CONVERSION SHALL BE EFFECTUATED BY (I) THE HOLDER
SURRENDERING TO THE COMPANY, (1) IN THE CASE OF CONVERSION OF ALL OUTSTANDING
PRINCIPAL, THIS DEBENTURE, OR (2) IN THE CASE OF PARTIAL CONVERSION, AN AGREED
FORM OF RELEASE AND DISCHARGE TO THE EXTENT OF THE PRINCIPAL AMOUNT TO BE
CONVERTED TOGETHER WITH (II) THE FORM OF CONVERSION NOTICE ATTACHED HERETO AS
EXHIBIT A (THE "NOTICE OF CONVERSION"), EXECUTED BY THE HOLDER OF THIS DEBENTURE
EVIDENCING SUCH HOLDER'S INTENTION TO CONVERT THIS DEBENTURE OR A SPECIFIED
PORTION HEREOF, AND ACCOMPANIED, IF REQUIRED BY THE COMPANY, BY PROPER
ASSIGNMENT HEREOF IN BLANK. INTEREST ACCRUED OR ACCRUING FROM THE DATE OF
ISSUANCE TO THE DATE OF CONVERSION SHALL, AT THE OPTION OF THE HOLDER, BE PAID
IN CASH AS SET FORTH ABOVE OR IN COMMON STOCK UPON CONVERSION AT THE APPLICABLE
CONVERSION PRICE ON THE CONVERSION DATE. NO FRACTION OF A SHARE OR SCRIP
REPRESENTING A FRACTION OF A SHARE WILL BE ISSUED ON CONVERSION, BUT THE NUMBER
OF SHARES ISSUABLE SHALL BE ROUNDED TO THE NEAREST WHOLE SHARE. THE DATE ON
WHICH NOTICE OF CONVERSION IS GIVEN (THE "CONVERSION DATE") SHALL BE DEEMED TO
BE THE DATE ON WHICH THE HOLDER FAXES THE NOTICE OF CONVERSION DUTY EXECUTED TO
THE COMPANY. FACSIMILE DELIVERY OF THE NOTICE OF CONVERSION SHALL BE ACCEPTED BY
THE COMPANY AT FACSIMILE NUMBER (416) 963-9659 ATTN.: CHAIRMAN. ONE OR MORE
CERTIFICATES REPRESENTING THE NUMBER OF FULL SHARES OF COMMON STOCK ISSUABLE
UPON SUCH CONVERSION WILL BE DELIVERED, AT THE COMPANY'S EXPENSE, TO THE HOLDER
WITHIN TEN (10) BUSINESS DAYS FROM THE DATE THE NOTICE OF CONVERSION IS
DELIVERED TO THE COMPANY. DELIVERY OF SHARES OF COMMON STOCK UPON CONVERSION
SHALL BE MADE TO THE ADDRESS SPECIFIED BY THE HOLDER IN THE NOTICE OF
CONVERSION. FOR PURPOSES OF THIS PARAGRAPH 5, "BUSINESS DAYS" SHALL MEAN DAYS ON
WHICH COMMERCIAL BANKS ARE OPEN FOR BUSINESS IN HONG KONG AND NEW YORK.

                  (b) The Company understands that a delay in the issuance of
shares of Common Stock upon a conversion beyond the ten (10) business day period
described in Paragraph 5(a) could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Business Days
Late" is defined as the number of business days beyond ten (10) business days
after the date the Notice of Conversion is delivered to the Company).

                                       5
<PAGE>

--------------------------------------------------------------------------------
                                                   Late Payment for Each
       No. Business Days Late                       $5,000 of Principal
                                                   Amount Being Converted
--------------------------------------------------------------------------------
                  1                                        $100
--------------------------------------------------------------------------------
                  2                                        $200
--------------------------------------------------------------------------------
                  3                                        $300
--------------------------------------------------------------------------------
                  4                                        $400
--------------------------------------------------------------------------------
                  5                                        $500
--------------------------------------------------------------------------------
                  6                                        $600
--------------------------------------------------------------------------------
                  7                                        $700
--------------------------------------------------------------------------------
                  8                                        $800
--------------------------------------------------------------------------------
                  9                                        $900
--------------------------------------------------------------------------------
                 10                                       $1,000
--------------------------------------------------------------------------------
            More than 10                    $1,000+$200 for each Business Day
                                               Late beyond 10 Business Days
--------------------------------------------------------------------------------

            The Company shall pay any payments incurred under this Paragraph
5(b) upon demand in immediately available funds. Nothing herein shall limit the
Holder's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver Common Stock to the Holder, including,
without limitation, the Holder's actual losses occasioned by any "buy-in" of
Common Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within ten (10) business days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion, and in
such event no late payments shall be due in connection with such withdrawn
conversion.

                  (c) If at any time (i) the Company challenges, disputes or
denies the right of the Holder to effect the conversion of this Debenture into
Common Stock or otherwise dishonors or rejects any Notice of Conversion
delivered in accordance with this Paragraph 5 or (ii) any Company stockholder
who is not and has never been an Affiliate (as defined in Rule 405 under the
Act) of the Holder obtains a judgment or any injunctive relief from any court or
public or governmental authority which denies, enjoins, limits, modifies, delays
or disputes the right of the Holder hereof to effect the conversion of this
Debenture into Common Stock, then the Holder shall have the right, by written
notice, to require the Company to promptly redeem this Debenture for cash at a
redemption price equal to one hundred ten percent (110%) of the outstanding
principal amount hereof and all accrued and unpaid interest hereon. Under any of
the circumstances set forth above, the Company shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder), subject in the
case of clause (ii) to the Company's right to control and assume the defense of
any such action. In the absence of an injunction precluding the same, the
Company shall issue shares upon receipt of the Notice of Conversion.

                                       6
<PAGE>

            5. (d) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. ss. 362 in respect of the Holder's
conversion privilege.

            6. THE CONVERSION SHARES: (A) SHALL BE CREDITED AS FULLY PAID; (B)
SHALL RANK PARI PASSU IN ALL RESPECTS AND FORM ONE CLASS WITH THE SHARES OF
COMMON STOCK THEN IN ISSUE AND (C) ENTITLE THE HOLDER TO BE PAID AN APPROPRIATE
PROPORTION OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS DECLARED, MADE OR PAID ON
SHARES OF COMMON STOCK IN RESPECT OF THE CALENDAR YEAR IN WHICH THE RELEVANT
CONVERSION DATE FALLS, BUT NOT IN RESPECT OF AN EARLIER FINANCIAL YEAR.

            7. NO PROVISION OF THIS DEBENTURE SHALL ALTER OR IMPAIR THE
OBLIGATION OF THE COMPANY, WHICH IS ABSOLUTE AND UNCONDITIONAL, TO PAY THE
PRINCIPAL OF, AND INTEREST ON, THIS DEBENTURE AT THE TIME PLACE, AND RATE, AND
IN THE COIN OR CURRENCY OR SHARES OF COMMON STOCK, HEREIN PRESCRIBED. THIS
DEBENTURE IS A DIRECT OBLIGATION OF THE COMPANY.

            8. THE COMPANY SHALL AT ALL TIMES RESERVE AND KEEP AVAILABLE OUT OF
ITS AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK SOLELY FOR THE PURPOSE OF
EFFECTING THE CONVERSION OF THE DEBENTURE SUCH NUMBER OF ITS SHARES OF COMMON
STOCK AS SHALL FROM TIME TO TIME BE SUFFICIENT TO EFFECT THE CONVERSION OF THE
DEBENTURE; AND, IF AT ANY TIME THE NUMBER OF AUTHORIZED BUT UNISSUED SHARES OF
COMMON STOCK SHALL NOT BE SUFFICIENT TO EFFECT THE CONVERSION OF THE ENTIRE
OUTSTANDING PRINCIPAL AMOUNT OF THIS DEBENTURE, IN ADDITION TO SUCH OTHER
REMEDIES AS SHALL BE AVAILABLE TO THE HOLDER, THE COMPANY WILL USE ITS BEST
EFFORTS TO TAKE SUCH CORPORATE ACTION AS MAY, IN THE OPINION OF ITS COUNSEL, BE
NECESSARY TO INCREASE ITS AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK TO SUCH
NUMBER OF SHARES AS SHALL BE SUFFICIENT FOR SUCH PURPOSES.

            9. (A) IN THE EVENT THE COMPANY SHALL PAY A SHARE DIVIDEND OR OTHER
DISTRIBUTION PAYABLE IN SHARES OF COMMON STOCK ON THE SHARES OF COMMON STOCK, OR
THE ISSUED SHARES OF COMMON STOCK SHALL BE SUBDIVIDED, COMBINED OR CONSOLIDATED,
BY RECLASSIFICATION OR OTHERWISE, INTO A GREATER OR LESSER NUMBER OF SHARES OF
COMMON STOCK, THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR (AND EACH
CONVERSION PRICE IN EFFECT SUBSEQUENT) TO SUCH SUBDIVISION OR COMBINATION SHALL,
CONCURRENTLY WITH THE EFFECTIVENESS OF SUCH SUBDIVISION, COMBINATION OR
CONSOLIDATION, BE PROPORTIONATELY ADJUSTED. IN THE CASE OF A SHARE DIVIDEND OR
OTHER DISTRIBUTION PAYABLE IN SHARES OF COMMON STOCK SUCH ADJUSTMENT SHALL OCCUR
AS FOLLOWS: THE CONVERSION PRICE THAT IS THEN IN EFFECT (AND IN EFFECT AT ANY
TIME THEREAFTER) SHALL BE DECREASED AS OF THE TIME OF SUCH ISSUANCE, OR IN THE
EVENT A RECORD DATE IS FIXED, AS OF THE CLOSE OF BUSINESS ON SUCH RECORD DATE,
BY MULTIPLYING THE CONVERSION PRICE THEN (AND THEREAFTER) IN EFFECT BY A
FRACTION (1) THE NUMERATOR OF WHICH IS THE TOTAL NUMBER OF SHARES OF ISSUED
COMMON STOCK IMMEDIATELY PRIOR TO THE TIME OF SUCH ISSUANCE OR THE CLOSE OF
BUSINESS ON SUCH RECORD DATE, AS THE CASE MAY BE, AND (2) THE DENOMINATOR OF
WHICH IS THE TOTAL NUMBER OF SHARES OF ISSUED COMMON STOCK IMMEDIATELY PRIOR TO
THE TIME OF SUCH ISSUANCE OR THE CLOSE OF BUSINESS ON SUCH RECORD DATE PLUS THE
NUMBER OF SHARES OF COMMON STOCK ISSUABLE IN PAYMENT OF SUCH DIVIDEND OR
DISTRIBUTION; PROVIDED, HOWEVER, THAT, IF SUCH RECORD DATE IS FIXED AND SUCH
DIVIDEND IS NOT FULLY PAID OR IF SUCH DISTRIBUTION IS NOT FULLY MADE ON THE DATE
FIXED THEREFOR, THE CONVERSION PRICE SHALL BE RECOMPUTED ACCORDINGLY AS OF THE
CLOSE OF BUSINESS ON SUCH RECORD DATE AND THEREAFTER THE CONVERSION PRICE SHALL
BE ADJUSTED TO REFLECT THE ACTUAL PAYMENT OF SUCH DIVIDEND OR DISTRIBUTION.

                        (b) Upon the occurrence of each adjustment of the
Conversion Price pursuant to this Paragraph 9, the Company, at its expense,
shall promptly cause independent certified public accountants of recognized
standing selected by the Company to compute such adjustment in accordance with
the terms hereof and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall forthwith mail a copy of each such certificate to the Holder and shall,
upon the written request at any time of the Holder, furnish or cause to be
furnished to the Holder a like certificate setting forth all such adjustments
and (ii) the Conversion Price at the time in effect.

                                       7
<PAGE>

            10. (A) IF THE COMPANY SHALL (I) EFFECT A REORGANIZATION, (II)
CONSOLIDATE WITH OR MERGE INTO ANY OTHER PERSON, OR (III) TRANSFER ALL OR
SUBSTANTIALLY ALL OF ITS PROPERTIES OR ASSETS TO ANY OTHER PERSON UNDER ANY PLAN
OR ARRANGEMENT CONTEMPLATING THE DISSOLUTION OF THE COMPANY WITHIN 24 MONTHS
FROM THE DATE OF SUCH TRANSFER (ANY SUCH TRANSACTION BEING HEREINAFTER SOMETIMES
REFERRED TO AS A "REORGANIZATION") THEN, IN EACH SUCH CASE, THE HOLDER OF THIS
DEBENTURE, ON THE EXERCISE HEREOF AS PROVIDED IN PARAGRAPH 3 AT ANY TIME AFTER
THE CONSUMMATION OR EFFECTIVE DATE OF SUCH REORGANIZATION (THE "EFFECTIVE
DATE"), SHALL RECEIVE, IN LIEU OF THE SHARES OF COMMON STOCK ISSUABLE ON SUCH
EXERCISE PRIOR TO SUCH CONSUMMATION OR SUCH EFFECTIVE DATE, THE STOCK AND OTHER
SECURITIES AND PROPERTY (INCLUDING CASH) TO WHICH THE HOLDER WOULD HAVE BEEN
ENTITLED UPON SUCH CONSUMMATION OR IN CONNECTION WITH SUCH DISSOLUTION, AS THE
CASE MAY BE, IF THE HOLDER HAD SO EXERCISED THIS DEBENTURE, IMMEDIATELY PRIOR
THERETO; PROVIDED THAT THE SUCCESSOR CORPORATION IN ANY SUCH REORGANIZATION
WHERE THE COMPANY WILL NOT BE THE SURVIVING ENTITY (THE "ACQUIRING COMPANY") HAS
AGREED PRIOR TO SUCH REORGANIZATION IN A WRITING SATISFACTORY IN FORM AND
SUBSTANCE TO THE HOLDER THAT THIS DEBENTURE SHALL CONTINUE IN FULL FORCE AND
EFFECT AND THE TERMS HEREOF SHALL BE APPLICABLE TO THE SHARES OF STOCK AND OTHER
SECURITIES AND PROPERTY RECEIVABLE ON EXERCISE AFTER THE CONSUMMATION OF SUCH
REORGANIZATION, AND SHALL BE BINDING UPON THE ISSUER OF ANY SUCH STOCK OR OTHER
SECURITIES (INCLUDING, IN THE CASE OF ANY TRANSFER OF PROPERTIES OR ASSETS
REFERRED TO ABOVE, THE PERSON ACQUIRING ALL OR SUBSTANTIALLY ALL OF THE
PROPERTIES OR ASSETS OF THE COMPANY). (B) IN THE CASE OF ANY SUCH REORGANIZATION
WHERE THE COMPANY WILL NOT BE THE SURVIVING ENTITY (THE "ACQUIRING COMPANY") AND
THE ACQUIRING COMPANY HAS NOT AGREED IN WRITING SATISFACTORY IN FORM AND
SUBSTANCE TO THE HOLDER TO CONTINUE THIS DEBENTURE, THEN THE COMPANY SHALL
NOTIFY THE HOLDER IN WRITING AT LEAST 30 DAYS PRIOR TO THE EFFECTIVE DATE OF
SUCH REORGANIZATION. DURING THE 30-DAY PERIOD FOLLOWING THE HOLDER'S RECEIPT OF
SUCH NOTICE, (THE "NOTICE PERIOD") THE HOLDER, UPON WRITTEN NOTICE TO THE
COMPANY, MAY ELECT TO: (I) EXERCISE THIS DEBENTURE OR ANY PART THEREOF AT AN
EXERCISE PRICE (THE "DISCOUNTED EXERCISE PRICE") EQUAL TO THE THEN PREVAILING
CONVERSION PRICE HEREUNDER DISCOUNTED AT THE DISCOUNT RATE (AS USED HEREIN THE
"DISCOUNT RATE" SHALL MEAN THE THEN PREVAILING INTEREST RATE ON U.S. TREASURY
NOTES ISSUED ON (OR IMMEDIATELY PRIOR TO) THE DATE OF SUCH 30-DAY NOTICE AND
MATURING ON JULY 31, 2005 (OR IMMEDIATELY PRIOR THERETO), SUCH RATE TO BE
COMPOUNDED ANNUALLY THROUGH JULY 31, 2005, AND IN NO EVENT TO BE LESS THAN 10%
ANNUALLY); OR

                                       8
<PAGE>

                  (II) REQUIRE THE COMPANY TO PAY TO THE HOLDER AN AMOUNT (THE
"MERGER PROFIT AMOUNT") EQUAL TO THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE
PER SHARE OF COMMON STOCK OF THE COMPANY BEING PURCHASED BY THE ACQUIRING
COMPANY IN THE REORGANIZATION AND THE DISCOUNTED EXERCISE PRICE DESCRIBED IN
CLAUSE (I) ABOVE AND THE DEBENTURE SHALL SIMULTANEOUSLY EXPIRE. THE MERGER
PROFIT AMOUNT SHALL BE PAYABLE IN THE SAME FORM AS THE COMMON STOCKHOLDERS OF
THE COMPANY SHALL BE PAID BY THE ACQUIRING COMPANY FOR THEIR SHARES OF COMMON
STOCK OF THE COMPANY. THE FAIR MARKET VALUE OF ANY NONCASH PROPERTY RECEIVED
FROM THE ACQUIRING COMPANY UPON THE REORGANIZATION SHALL BE DETERMINED IN GOOD
FAITH BY THE BOARD OF DIRECTORS OF THE COMPANY, AS APPROVED BY THE COMPANY'S
STOCKHOLDERS.

            11. THE HOLDER, BY ACCEPTANCE HEREOF, AGREES THAT THIS DEBENTURE IS
BEING ACQUIRED FOR INVESTMENT AND THAT SUCH HOLDER WILL NOT OFFER, SELL
OTHERWISE DISPOSE OF THIS DEBENTURE OR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF EXCEPT UNDER CIRCUMSTANCES WHICH WILL NOT RESULT IN A
VIOLATION OF THE ACT OR ANY APPLICABLE STATE BLUE SKY OR FOREIGN LAWS OR SIMILAR
LAWS RELATING TO THE SALE OF SECURITIES.

            12. THIS DEBENTURE AND THE LETTER AGREEMENT, AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY CONSENTS TO THE
JURISDICTION OF THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE
CITY OF NEW YORK OR THE STATE COURTS OF THE STATE OF NEW YORK SITTING IN THE
CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS DEBENTURE AND
THE LETTER AGREEMENT, AND HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW,
ANY OBJECTION, INCLUDING ANY OBJECTION BASED ON FORUM NON CONVENIENS, TO THE
BRINGING OF ANY SUCH PROCEEDING IN SUCH JURISDICTIONS.

            13. EACH OF THE FOLLOWING EVENTS SHALL CONSTITUTE AN "EVENT OF
DEFAULT":

            (a) The Company shall default in the payment of principal or
interest on this Debenture and same shall continue for a period of three (3)
days; or

            (b) Any of the representations or warranties made by the Company
herein, in the Letter Agreement, the Investor Rights Agreement, any Ancillary
Agreement or in any agreement, certificate or financial or other written
statements heretofore or hereafter furnished by the Company in connection with
the execution and delivery of this Debenture or the Letter Agreement shall be
false or misleading in any material respect at the time made; or

                                       9
<PAGE>

            (c) The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock upon exercise by
the Holder of the conversion rights of the Holder in accordance with the terms
of this Debenture, fails to transfer or to cause its Transfer Agent to transfer
any certificate for shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any shares of Common Stock issued
to the Holder upon conversion of this Debenture as and when required by this
Debenture, the Letter Agreement or the Investor Rights Agreement and such legend
removal is otherwise lawful, and any such failure shall continue uncured for
five (5) business days; or

            (d) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of the Company under the Letter Agreement, the Investor Rights Agreement, any
Ancillary Agreement or this Debenture and such failure shall continue uncured
for a period of thirty (30) days after written notice from the Holder of such
failure; or

            (e) The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or

            (f) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or

            (g) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within sixty (60) days thereafter; or

            (h) Any money judgment, writ or warrant of attachment, or similar
process in excess of Five Hundred Thousand US Dollars ($500,000) in the
aggregate shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a
period of sixty (60) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or

            (i) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
or

                                       10
<PAGE>

            (j) The Company shall have its Common Stock suspended from trading
on an exchange or the Nasdaq OTCBB for in excess of fifteen (15) trading days or
delisted from trading on an exchange or the Nasdaq OTCBB for in excess of two
(2) trading days; or

            (k) Mr. William Ballard shall voluntarily cease to be the Chairman
and a member of the Board of Directors of the Company.

THEN, OR AT ANY TIME THEREAFTER, AND IN EACH AND EVERY SUCH CASE, UNLESS SUCH
EVENT OF DEFAULT SHALL HAVE BEEN WAIVED IN WRITING BY THE HOLDER (WHICH WAIVER
SHALL NOT BE DEEMED TO BE A WAIVER OF ANY SUBSEQUENT DEFAULT) THIS DEBENTURE
SHALL IMMEDIATELY BECOME DUE AND PAYABLE, WITHOUT PRESENTMENT, DEMAND, PROTEST
OR NOTICE OF ANY KIND, ANY IMPLIED OR EXPRESS RIGHT TO WHICH HEREBY EXPRESSLY
WAIVED BY THE COMPANY, ANYTHING HEREIN OR IN ANY NOTE OR OTHER INSTRUMENTS
CONTAINED TO THE CONTRARY NOTWITHSTANDING, AND THE HOLDER MAY IMMEDIATELY
ENFORCE ANY AND ALL OF THE HOLDER'S RIGHTS AND REMEDIES PROVIDED HEREIN OR ANY
OTHER RIGHTS OR REMEDIES AFFORDED BY LAW; PROVIDED THAT ANY PAYMENT OF THIS
DEBENTURE IN CONNECTION WITH AN EVENT OF DEFAULT (OTHER THAN A DELISTING OF ITS
COMMON STOCK PURSUANT TO CLAUSE (J)) MAY BE MADE, AT THE COMPANY'S ELECTION, IN
CASH OR IN SHARES OF COMMON STOCK, IN SUCH NUMBER AS WOULD BE ISSUED AT THE
DEFAULT CONVERSION PRICE.,

            14. ANY PROVISION OF THIS DEBENTURE MAY BE AMENDED, WAIVED OR
MODIFIED UPON THE WRITTEN CONSENT OF THE COMPANY AND THE HOLDER.

            15. NOTHING CONTAINED IN THIS DEBENTURE SHALL BE CONSTRUED AS
CONFERRING UPON THE HOLDER OR ANY OTHER PERSON THE RIGHT TO VOTE OR TO RECEIVE
DIVIDENDS OR TO CONSENT OR RECEIVE NOTICE AS A SHAREHOLDER IN RESPECT OF ANY
MEETING OF SHAREHOLDERS OR ANY RIGHTS WHATSOEVER AS A SHAREHOLDER OF THE
COMPANY, UNLESS AND TO THE EXTENT CONVERTED IN ACCORDANCE WITH THE TERMS HEREOF.

                                       11
<PAGE>

            IN WITNESS WHERE OF, the Company has caused this Debenture to be
duly executed by an officer thereunto duly authorized.

Dated: December 14, 2004
                                    TENGTU INTERNATIONAL CORP.
(Corporate Seal)

                                    BY:   John Watt
                                          ---------------
                                    NAME: John Watt
                                    TITLE:  President
Attest:

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

                                       12
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

   (To be Executed by the Registered Holder in order to Convert the Debenture)

            The undersigned, the holder of the below-referenced Debenture,
hereby irrevocably elects to convert $ of the principal amount of the Amended
and Restated Floating Convertible Debenture Due July 31, 2005 issued by Tengtu
International Corp. (the "Company") into Shares of Common Stock of the Company
according to the conditions and as of the date set forth below.*

Date of Conversion:
                   -------------------------------------------------------------

Principal Amount to be Converted:
                                  ----------------------------------------------
Applicable Conversion Price:
                            ----------------------------------------------------

Signature:
          ----------------------------------------------------------------------
[Name]

Address:
        ------------------------------------------------------------------------

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

* This original Debenture must be received by the Company by the tenth (10th)
Hong Kong business day following the Date of Conversion, if such conversion
represents the remaining principal balance of the Debenture.

                                       13

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