Document:

Form of Amendment Agreement

 

EXHIBIT 10.5

AMENDMENT AGREEMENT

     AGREEMENT
dated effective September 15, 2005, by and between Viragen, Inc. (“Viragen”), a
Delaware corporation (“Viragen”) and ___(“Purchaser”). Capitalized terms used in this
Agreement and not otherwise defined herein shall have the respective meanings accorded to them in
that certain Purchase Agreement dated April 1, 2004 by and between Viragen and Purchaser (the
“Purchase Agreement”).

W I T N E S S E T H:

     WHEREAS, Viragen and Purchaser are parties to the Purchase Agreement; and

     WHEREAS, in furtherance of the Purchase Agreement and the other Transaction Documents, Viragen
sold and issued the Note and Warrant to Purchaser; and

     WHEREAS, contemporaneous herewith, Viragen proposes to consummate the sale of $2,000,000 (the
“Proposed Financing”) in amortizing convertible debentures (the “Debentures”) substantially upon
the terms and conditions contained in the transaction documents governing the Proposed Financing
(the “Proposed Financing Documents”); and

     WHEREAS, Viragen and Purchaser desire to amend the Note and Warrant and, to the extent
applicable, the other Transaction Documents on the terms and conditions set forth herein.

     NOW THEREFORE, in consideration of the promises and covenants herein set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge by the
parties, the parties hereto, intending to be legally bound, agree as follows:

     1. Amendments to Note. The Note is hereby amended as follows:

     (a) The definition of “Maturity Date” set forth in Section 1(c) of the Note is hereby
amended and restated as follows:

“Maturity Date” means August 31, 2008, subject to earlier conversion or redemption
as set forth herein and in the Transaction Documents”.

     (b) Section 6(c)(7)(A) of the Note is hereby amended and restated as follows:

“Adjustments for Certain Issuances of Newly Issued Shares. (A) In case at any
time on or after September 14, 2005, the Company shall issue shares of its Common
Stock or Common Stock Equivalents (collectively, the “Newly Issued Shares”), other
than an issuance pro rata to all holders of its outstanding Common Stock, at an
effective per share price below the Conversion Price (the “Note Base Share Price”)
in effect immediately prior to such issuance, then following such issuance of Newly
Issued Shares the Conversion Price shall be adjusted to equal the Note Base Share
Price.”

 

 

     (c) Section 6(c)(7)(B)(ii) of the Note is hereby amended and restated as follows:

“(ii) securities of the Company issued in a firm commitment public offering with a
reputable underwriter”.

     (d) Section 6(c)(7)(B)(v) of the Note is hereby deleted and restated as follows:

“(v) the issuance by the Company of Newly Issued Shares 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, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions that occur after September 14, 2005;

     (e) Section 6(c)(7)(B) of the Note is hereby amended to add the following provisions:

(viii) the issuance of Newly Issued Shares by the Company in connection with the
Company’s acquisition of the minority interest in Viragen International, Inc.; and.

(ix) securities issued pursuant to acquisitions or strategic transactions, provided
any 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”.

     (f) The following provisions shall be added to Section 6 of the Note as subsection (h):

“(h) Forced Conversion. Notwithstanding anything herein to the contrary,
if each of the daily VWAPs for any 30 consecutive Trading Days (each, a “Threshold
Period”) exceeds $2.00 (subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after September 14, 2005), the Company may, within 1 Trading Day of
the end of any such period, deliver a notice to the Holder (a “Forced Conversion
Notice” and the date such notice is received by the Holder, the “Forced
Conversion Notice Date”) to cause the Holder to immediately convert all or part
of the then outstanding principal amount of this Note pursuant to Section 6, it
being understood that the “Conversion Date” for purposes of this Section 6 shall be
deemed to occur on the third Business Day following the Forced Conversion Notice
Date (such third Business Day being referred to as the “Forced Conversion Date”).
The Company may not deliver a Forced Conversion

 

 

Notice and any Forced Conversion Notice delivered by the Company shall not be
effective unless, all of the Equity Conditions (as hereinafter defined) are met on
each Trading Day occurring during the applicable Threshold Period through the later
of the applicable Forced Conversion Date and the date the shares of Common Stock
issuable pursuant to such conversion are delivered to the Holder. For purposes of
clarification, a Forced Conversion shall be subject to all of the provisions of
Section 6, including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions. In order that the Company shall
not discriminate among the Holder and the holders of the Other Notes, the Company
agrees that the determination to deliver a Forced Conversion Notice to the Holder
shall be made in the same proportions as the determination by the Company with
respect to the Other Notes.

For purposes of this provision, the term “Equity Conditions” shall mean shall mean,
during the period in question, (i) the Company shall have duly honored all
conversions and redemptions scheduled to occur or occurring by virtue of one or more
Conversion Notices of the Holder, if any, (ii) all liquidated damages and other
amounts owing to the Holder in respect of this Note shall have been paid; (iii)
there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on an Approved Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on an Approved Market
(and the Company believes, in good faith, that trading of the Common Stock on an
Approved Market will continue uninterrupted for the foreseeable future), (v) there
is a sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, (vi) there is then existing no Event of Default or event
which, with the passage of time or the giving of notice, would constitute an Event
of Default, (vii) the issuance of the shares of Common Stock in question (or, in the
case of a redemption, the shares issuable upon conversion in full of the redemption
amount), ignoring for such purposes the Limitations in Sections 6(g) and 4(c)(ii) to
the Holder would not violate the limitations set forth in Section 4(c)(i) and
Section 4(c)(ii) and (viii) no public announcement of a pending or proposed
Fundamental Change has occurred that has not been consummated.

In connection with the computation of any limitation on beneficial ownership
contained in this Note, the Warrant or any of the other Transaction Documents, the
Holder agrees that its obligations under this subsection (h) shall be attributed to
the Holder’s beneficial ownership prior to the attribution of any securities that
the Holder might acquire upon conversion of the Note or exercise of the
Warrants.”

 

 

     (g) Notwithstanding anything in Section 6(c)(7(B) of the Note to the contrary, the
issuance of the Debentures shall result in an immediate adjustment to the Conversion Price
pursuant to amended Section 6(c)(7(A) of the Note and any issuance of Common Stock to any
Holder of the Debentures at a price less than the then Conversion Price shall result in an
adjustment to the Conversion Price pursuant to amended Section 6(c)(7)(A).

     2. Amendments to Warrant. The Warrant is hereby amended as follows:

     (a) Section 8(b) is hereby deleted in its entirety and replaced with
“[INTENTIONALLY DELETED]”, Section 8(c) remains unchanged and in full force and effect and
Section 8(a) is amended and restated as follows:

“Adjustments for Certain Issuances of Newly Issued Shares. (a) In case
at any time on or after September 14, 2005 the Company shall issue shares of its
Common Stock or Common Stock Equivalents (collectively, the “Newly Issued Shares”),
other than an issuance pro rata to all holders of its outstanding Common Stock, at
an effective price per share (the “Warrant Base Share Price”) below the Purchase
Price in effect immediately prior to such issuance, then following such issuance of
Newly Issued Shares the Purchase Price shall be reduced to equal 119% of the Warrant
Base Share Price; provided in no event shall this result in an increase to the then
Purchase Price.”

     (b) Section 8(d)(2) of the Warrant is hereby amended and restated as follows:

“(2) securities of the Company issued in a firm commitment public offering with a
reputable underwriter;”

     (c) Section 8(d) of the Warrant is hereby amended by adding the following additional
provisions:

“(8) the issuance by the Company of Newly Issued Shares 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, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions that occur after September 14, 2005;

(9) the issuance of Newly Issued Shares by the Company in connection with the
Company’s acquisition of the minority interest in Viragen International, Inc.; and.

(10) securities issued pursuant to acquisitions or strategic transactions, provided
any 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.”

     (d) Notwithstanding anything in Section 8(d) of the Warrant to the contrary, the
issuance of the Debentures shall result in an immediate adjustment pursuant to amended
Section 8(a) of the Warrant and any issuance of Common Stock underlying the Debentures to
any Holder of the Debentures, whether by virtue of an amortization payment in Common Stock
or otherwise, at a price less than the than Purchase Price shall result in an adjustment
pursuant to amended Section 8(a).

     3. Acknowledgment and Agreement re: Insufficient Shares and Allocation of Available
Shares. Purchaser acknowledges and understands that upon consummation of the transactions
contemplated by this Agreement, similar agreements with the holders of the Other Notes and the
Proposed Financing Documents (collectively, the “Transactions”) Viragen will have an insufficient
number of authorized but unissued shares to enable it to issue all shares issuable upon conversion
of the Note, the Other Notes, the Warrant, the warrants issued to the holders of the Other Notes
and the shares issuable in the Proposed Financing. Therefore, Purchaser hereby agrees that, until
such time as Stockholder Authorization is received, Purchaser’s right to convert the Note and
exercise the Warrant will be limited to a pro-rata allocation of Viragen’s available shares among
all participants in the Transactions. Viragen hereby covenants and agrees to seek Stockholder
Authorization in the manner required by the Proposed Financing Documents. Viragen and Purchaser
hereby agree that the Transaction Documents shall be interpreted so as to give effect to the
provisions of this section.

     4. Consent and Confirmation re: Proposed Financing. Purchaser hereby consents to the
Proposed Financing substantially upon the terms and conditions of the Proposed Financing Documents,
receipt of a copy of which is hereby acknowledged. Purchaser acknowledges that it has received an
opportunity to participate in the Proposed Financing, as contemplated
by Section 6.3(a) of the
Purchase Agreement, and hereby confirms that it declines to do so, except to the extent otherwise
indicated in a Participation Form previously executed by Purchaser and delivered to Viragen.

     5. Effect on Transaction Documents; Conflicting Provisions. Except as set forth
herein, the terms of the Purchase Agreement, the Note, the Warrant and the other Transaction
Documents shall remain in full force and effect. Any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of the Note, the Warrant or any of the
other Transaction Documents, shall be resolved by reference to the terms and conditions of this
Agreement.

     6. Effective Date of Agreement. This Agreement shall not become effective unless and
until the Company has received a copy of this Agreement signed by Purchaser, as well as its receipt
of similar agreements executed by each holder of the Other Notes and consummation of the Proposed
Financing.

 

 

     7. Entire Agreement. This Agreement, including the Exhibits hereto, and the
Transaction Documents as amended hereby, contains the entire understanding of the parties with
respect to the subject matter hereof.

     8. Expenses. Each of the parties hereto shall pay its own costs and expenses in
connection herewith.

     9. Miscellaneous. Except as otherwise set forth herein, the following provisions of
the Purchase Agreement shall govern the terms and conditions of this Agreement: 9.1, 9.2, 9.3, 9.4,
9.6, 9.7, 9.8, 9.10, 9.11, 9.12, 9.13, 9.14 and 9.15.

     10. Status of Debentures. The Debentures shall rank pari passu with all of the Notes.

 

 

     IN WITNESS WHEREOF, we have executed this Agreement as of the date and year first above
written.

	 	 	 	 	 
	 	 	VIRAGEN, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Dennis W. Healey
	 

	 	 	 	Executive Vice President
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	By:Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "Agreement") is dated as of
September 14, 2005,  among China BAK Battery,  Inc., a Nevada  corporation  (the
"Company"), and the investors identified on the signature pages hereto (each, an
"Investor" and collectively, the "Investors").

         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 Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain  securities of the Company,  as more fully described in
this Agreement.

         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 the Investors agree
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 shall have
the meanings indicated in this Section 1.1:

                  "Action" means any action, suit, inquiry, notice of violation,
proceeding   (including  any  partial   proceeding  such  as  a  deposition)  or
investigation pending or threatened in writing against or affecting the Company,
any  Subsidiary or any of their  respective  properties  before or by any court,
arbitrator,   governmental  or  administrative   agency,   regulatory  authority
(federal,  state,  county,  local or foreign),  stock market,  stock exchange or
trading facility.

                  "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 (as defined below).

                  "Business Day" means any day except  Saturday,  Sunday and any
day which is a federal legal holiday or a day on which banking  institutions  in
the  States of New York or Nevada are  authorized  or  required  by law or other
governmental action to close.

                  "Closing" has the meaning set forth in Section 2.1.

                  "Closing  Date" means the Business Day  immediately  following
the date on which all of the conditions set forth in Sections 5.1 and 5.2 hereof
are satisfied, or such other date as the parties may agree.

<PAGE>

                  "Commission" means the Securities and Exchange Commission.

                  "Common  Stock" means the common stock of the Company,  $0.001
par value per  share,  and any  securities  into  which  such  common  stock may
hereafter be reclassified.

                  "Common Stock Equivalents" means any securities of the Company
or any  Subsidiary  which entitle the holder  thereof to acquire Common Stock at
any time,  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 or other  securities  that  entitle  the holder to  receive,  directly  or
indirectly, Common Stock.

                  "Company Counsel" means the law firm of Andrews Kurth, L.L.P.

                  "Company  Deliverables"  has the  meaning set forth in Section
2.2(a).

                  "Disclosure  Materials"  has the  meaning set forth in Section
3.1(h).

                  "Escrow  Agreement"  means the Escrow  Agreement,  dated as of
August 30, 2005, among the Company,  Roth Capital Partners,  LLC and Wells Fargo
Bank,  National  Association as the escrow agent (the "Escrow  Agent") set forth
therein, in the form of Exhibit F hereto.

                  "Effective   Date"  means  the  date  that  the   Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.

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

                  "Form SB-2" has the meaning set forth in Section 3.1(h).

                  "GAAP" means U.S. generally accepted accounting principles.

                  "Hong Kong Counsel" means the law firm of Amelia Cheung & Co.

                  "Initial  Closing" means the initial closing pursuant to which
each Investor,  except the Remaining  Investors,  shall deliver their respective
Investment  Amount to the Escrow Agent to be placed in an escrow  account  until
the Closing and shall occur on the date of this Agreement.

                  "Investor  Deliverables"  has the meaning set forth in Section
2.2(c).

                  "Intellectual  Property  Rights"  has the meaning set forth in
Section 3.1(p).

                  "Investment Amount" means, with respect to each Investor,  the
Investment Amount indicated on such Investor's signature page to this Agreement.

                                       2
<PAGE>

                  "Investor Party" has the meaning set forth in Section 4.7.

                  "Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.

                  "Material  Adverse Effect" means, as applicable,  any of (i) a
material and adverse effect on the legality,  validity or  enforceability of any
Transaction  Document,  (ii) a material  and  adverse  effect on the  results of
operations, assets, prospects, business or condition (financial or otherwise) of
the  Company  and the  Subsidiaries,  taken  as a whole,  or  (iii)  an  adverse
impairment to the Company's ability to perform on a timely basis its obligations
under any Transaction Document.

                  "Nevada Counsel" means the law firm of Schreck Brigone.

                  "New York Courts" means the state and federal  courts  sitting
in the City of New York, Borough of Manhattan.

                  "Pending   Registration   Statement"  means  the  Registration
Statement  on Form SB-2 filed by the Company with the  Commission  on January 1,
2005, as the same has been and shall be amended or supplemented.

                  "Per Unit Purchase Price" equals $5.50.

                  "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.

                  "PRC Counsel" means the law firm of Grandall Legal Group

                  "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   Statement"  means  a  registration   statement
meeting the  requirements  set forth in the  Registration  Rights  Agreement and
covering the resale by the Investors of the appropriate  Registrable  Securities
as identified in Section 2(a) of the Registration Rights Agreement.

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

                  "Remaining Investors" means the Investors to be indentified by
Roth Capital Partners, LLC on the date hereof and conveyed in writing to each of
the Investors and the Company.

                                       3
<PAGE>

                  "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.

                   "SEC Reports" has the meaning set forth in Section 3.1(h).

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

                  "Shares"  means the  shares of Common  Stock  issuable  to the
Investors at the Closing in accordance with Section 2.2(a)(i).

                  "Short Sales" include,  without limitation,  all "short sales"
as defined in Rule 200 promulgated  under  Regulation SHO under the Exchange Act
and 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.

                  "Subsidiary" means any "significant  subsidiary" as defined in
Rule 1-02(w) of the  Regulation  S-X  promulgated  by the  Commission  under the
Exchange Act.

                  "Trading  Day"  means (i) a day on which the  Common  Stock is
traded on a Trading  Market,  or (ii) if the  Common  Stock is not quoted on any
Trading   Market,   a  day  on  which  the   Common   Stock  is  quoted  in  the
over-the-counter  market as  reported  by the Pink  Sheets,  LLC (or any similar
organization  or  agency  succeeding  to its  functions  of  reporting  prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.

                  "Trading  Market"  means  whichever  of  the  New  York  Stock
Exchange,  the American Stock Exchange,  the NASDAQ National Market,  the NASDAQ
SmallCap  Market or OTC  Bulletin  Board on which the Common  Stock is listed or
quoted for trading on the date in question.

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

                                   ARTICLE II.
                                PURCHASE AND SALE

         2.1 Closing. At the Initial Closing each Investor, except the Remaining
Investors,  shall deliver each Investor's  respective  Investment  Amount to the
Escrow  Agent to be placed  in an  escrow  account  until  the  Closing.  At the
Closing,  subject  to the terms  and  conditions  set  forth in this  Agreement,
including the applicable  Conditions  Precedent to Closings set forth in Article
V, the Escrow  Agent shall  release the funds  received  pursuant to the Initial
Closing to the Company and the  Company  shall issue and sell to each  Investor,

                                       4
<PAGE>

and each Investor,  including the Remaining  Investors shall,  severally and not
jointly,  purchase from the Company,  the Shares  representing  such  Investor's
Investment  Amount.  The  Initial  Closing  shall take  place at the  offices of
Company  Counsel,  or such other location or time as the parties may agree.  The
Closing  shall take place at the offices of Company  Counsel on the Closing Date
or at such other location or time as the parties may agree.

         2.2 Closing Deliveries.  (a) At the Closing,  the Company shall deliver
or  cause  to  be  delivered  to  each  Investor  the  following  (the  "Company
Deliverables"):

                  (i) a certificate  evidencing a number of Shares equal to such
Investor's Investment Amount divided by the Per Unit Purchase Price,  registered
in the name of such Investor;

                  (ii) the legal opinions of Company  Counsel,  Nevada  Counsel,
PRC Counsel and Hong Kong  Counsel,  in the form  attached  hereto as Exhibit B,
Exhibit C, Exhibit D, and Exhibit E, respectively, addressed to the Roth Capital
Partners, LLC and the Investors; and

                  (iii) the Registration Rights Agreement,  duly executed by the
Company;

         (b) At the Initial  Closing,  (i) the Company  shall deliver the Escrow
Agreement,  duly  executed by the Company  Roth  Capital  Partners,  LLC and the
Escrow Agent,  and (ii) each  Investor,  except the Remaining  Investors,  shall
deliver or cause to be delivered to the Escrow Agent, its Investment  Amount, in
United States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Escrow Agent for such purpose; and

         (c)  At the  Closing,  each  Investor  shall  deliver  or  cause  to be
delivered to the Company,  the Registration  Rights Agreement,  duly executed by
such Investor. In addition, the Remaining Investors shall deliver or cause to be
delivered to the Company, its Investment Amount, in United States dollars and in
immediately  available  funds,  by wire  transfer  to an account  designated  in
writing by the Company for such  purpose.  Each  Investor's  Investment  Amount,
together  with the duly  executed  Registration  Rights  Agreement  shall be the
"Investor Deliverables".

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 Representations  and Warranties of the Company.  The Company hereby
makes the following  representations  and  warranties to each Investor as of the
date hereof and as of the Closing Date:

         (a)  Subsidiaries.  The Company has no direct or indirect  Subsidiaries
other than as specified in the SEC Reports or the Form SB-2.  The Company  owns,
directly or  indirectly,  all of the capital stock of each  Subsidiary  free and
clear of any and all Liens, and all the issued and outstanding shares of capital
stock of each  Subsidiary are validly issued and are fully paid,  non-assessable
and free of preemptive and similar rights.

                                       5
<PAGE>

         (b) Organization and Qualification. The Company and each Subsidiary are
duly  incorporated,  validly existing and in good standing under the laws of the
jurisdiction  of its  incorporation,  with the  requisite  corporate  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
of  any  of  the  provisions  of  its  respective  certificate  or  articles  of
incorporation,  bylaws or other organizational or charter documents except where
the violation would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. The Company and each Subsidiary
are duly qualified to conduct its respective businesses and are in good standing
as a  foreign  corporation  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, would not, individually or in the aggregate,  have or reasonably be expected
to result in a Material Adverse Effect.

         (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 corporate action
on the part of the Company  and no further  action is required by the Company in
connection therewith.  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,  will  constitute  the valid and  binding  obligation  of the
Company  enforceable against the Company in accordance with its terms, except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other equitable principles of general application.

         (d) No  Conflicts.  The  execution,  delivery  and  performance  of the
Transaction  Documents by the Company and the consummation by the Company of the
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,  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

                                       6
<PAGE>

(iii)  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  federal and state
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 would not,  individually  or in the  aggregate,
have or 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) the  filing  with  the  Commission  of one or more  Registration
Statements  in  accordance  with the  requirements  of the  Registration  Rights
Agreement, (ii) filings required by state securities laws, (iii) the filing of a
Notice of Sale of Securities on Form D with the Commission under Regulation D of
the Securities Act, (iv) the filings required in accordance with Section 4.5 and
(v) those that have been made or obtained prior to the date of this Agreement.

         (f) Issuance of the Shares. The Shares issuable under Section 2.2(a)(i)
have been 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,  provided,  however,  the Company's
representation  in this  subsection  (f) shall not apply to Liens created by any
Investor.  The Company has reserved from its duly  authorized  capital stock the
shares of Common Stock issuable pursuant to this Agreement in order to issue the
Shares.

         (g) Capitalization.  Except as set forth on Schedule 3.1(g), the number
of shares and type of all authorized,  issued and  outstanding  capital stock of
the  Company,  and all shares of Common Stock  reserved  for issuance  under the
Company's various option and incentive plans, is specified in the SEC Reports or
the Form SB-2.  Except as  specified  in the SEC  Reports or the Form SB-2 or on
Schedule  3.1(g),  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  specified  in the SEC
Reports  or the  Form  SB-2 or on  Schedule  3.1(g),  there  are no  outstanding
options,  warrants,  scrip 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.  Except as specified in
the SEC  Reports or the Form SB-2 or on Schedule  3.1(g),  the issue and sale of
the Shares  will not,  immediately  or with the  passage of time,  obligate  the
Company to issue shares of Common Stock or other securities to any Person (other
than the  Investors)  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.

         (h) SEC Reports; Financial Statements.  Except as set forth on Schedule
3.1(h),  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 12 months  preceding  the date hereof (or such  shorter

                                       7
<PAGE>

period as the Company was required by law to file such reports)  (the  foregoing
materials  being  collectively  referred  to  herein as the "SEC  Reports"  and,
together  with the Company  Schedules  to this  Agreement  and the Form SB-2 (as
defined  below),  the  "Disclosure  Materials")  on a timely basis or has timely
filed a valid  extension  of such  time of  filing  and has  filed  any such SEC
Reports prior to the  expiration of any such  extension.  Except as set forth on
Schedule 3.1(h), as of their respective  dates, the SEC Reports,  as amended and
the registration statement on Form SB-2/A (File No. 333-122209), as amended (the
"Form  SB-2"),  complied  as to  form  in all  material  respects  with  (i) the
requirements  of the  Securities  Act and the  Exchange  Act and the  rules  and
regulations of the Commission  promulgated  thereunder and (ii) any SEC comments
received or otherwise  conveyed to the Company  with  respect to any  previously
filed SEC Reports or the Form SB-2. In addition,  none of the SEC Reports or the
Form SB-2,  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  and the Form SB-2  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.  Such
financial  statements  have been prepared in  accordance  with GAAP applied on a
consistent  basis  during  the  periods  involved,  except  as may be  otherwise
specified in such financial  statements or the notes thereto, and fairly present
in all  material  respects  the  financial  position  of  the  Company  and  its
consolidated  Subsidiaries  as of and for the dates  thereof  and the results of
operations  and cash flows for the periods then ended,  subject,  in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

         (i) Press  Releases.  The press  releases  disseminated  by the Company
during the 12 months  preceding the date of this  Agreement  taken as a whole do
not contain any untrue  statement of a material fact or omit 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 and when made,
not misleading.

         (j) Material  Changes.  Since the date of the latest audited  financial
statements included within the SEC Reports,  except as specifically disclosed in
the SEC  Reports or the Form SB-2,  (i) there has been no event,  occurrence  or
development  that has had or that would  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,  accrued  expenses and
other  liabilities  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 or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its  shareholders
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,  or as  described in Schedule  3.1(j).  The Company does not have
pending  before  the  Commission  any  request  for  confidential  treatment  of
information.

                                       8
<PAGE>

         (k)  Litigation.  There is no Action  which (i)  adversely  affects  or
challenges the legality,  validity or  enforceability  of any of the Transaction
Documents  or the Shares or (ii)  except as  specifically  disclosed  in the SEC
Reports  or the  Form  SB-2,  would,  if  there  were an  unfavorable  decision,
individually or in the aggregate,  have or reasonably be expected to result in a
Material  Adverse  Effect.  Neither  the  Company  nor any  Subsidiary,  nor any
director or officer thereof (in his or her capacity as such), 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,  except
as  specifically  disclosed  in the SEC Reports or the Form SB-2.  There has not
been,  and  to  the  knowledge  of  the  Company,   there  is  not  pending  any
investigation  by the Commission  involving the Company or any current or former
director  or  officer  of the  Company  (in his or her  capacity  as such).  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.

         (l) 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.

         (m)  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 applicable
to the Company or Subisidiary,  as appropriate,  or (iii) is in violation of any
statute,  rule or regulation of any governmental  authority,  including  without
limitation  all  foreign,  federal,  state and  local  laws  relating  to taxes,
environmental  protection,  occupational health and safety,  product quality and
safety and employment and labor matters applicable to the Company or Subsidiary,
as  appropriate,  except in the case of each of the clauses  (i)-(iii)  as would
not, individually or in the aggregate,  have or reasonably be expected to result
in a Material  Adverse  Effect.  The Company is in compliance with all effective
requirements of the  Sarbanes-Oxley  Act of 2002, as amended,  and the rules and
regulations   thereunder,   that  are   applicable  to  it,  except  where  such
noncompliance  could not have or  reasonably be expected to result in a Material
Adverse Effect.

         (n) Regulatory  Permits.  Except as disclosed in Schedule  3.1(n),  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 or the Form SB-2,  except  where the failure to possess such permits

                                       9
<PAGE>

would not,  individually or in the aggregate,  have or reasonably be expected to
result in a Material Adverse Effect,  and neither the Company nor any Subsidiary
has received any notice of  proceedings  relating to the  revocation or material
modification of any such permits.

         (o)  Title to  Assets.  Except  as set forth in  Schedule  3.1(o),  the
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to their respective  businesses and
good  and  marketable  title in all  personal  property  owned  by them  that is
material  to their  respective  businesses,  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 those liens reflected on
the  financial  statements  included  in the SEC  Reports or the Form SB-2 or on
Schedule  3.10(o).  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 compliance,
except as would not,  individually  or in the  aggregate,  have or reasonably be
expected to result in a Material Adverse Effect.

         (p) 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  that  are  necessary  or  material  for  use in  connection  with  their
respective businesses as described in the SEC Reports or the Form SB-2 and which
the  failure  to so  have  would,  individually  or in the  aggregate,  have  or
reasonably be expected to result in 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 used by the
Company or any  Subsidiary  violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports or the Form SB-2, 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.

         (q) [Intentionally left blank]

         (r) Transactions With Affiliates and Employees.  Except as set forth in
the SEC  Reports or the Form SB-2,  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, that is required to be disclosed in
the SEC Reports.

         (s)  Disclosure  Controls.   The  Company  has  established  disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) 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 Chief Executive  Officer and Chief Financial Officer by others

                                       10
<PAGE>

within those  entities,  particularly  during the period in which the  Company's
Form 10-K or 10-Q, as the case may be, is being  prepared.  The Company's  Chief
Executive  Officer and Chief Financial  Officer have evaluated the effectiveness
of the  Company's  controls  and  procedures  in  accordance  with  Item  307 of
Regulation  S-K under the Exchange Act for the  Company's  most  recently  ended
fiscal  quarter or fiscal  year-end  (such date,  the  "Evaluation  Date").  The
Company  presented  in its  most  recently  filed  Form  10-K or Form  10-Q  the
conclusions of the Chief Executive Officer and Chief Financial Officer 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  control over financial
reporting  (as such term is defined in Item 308(c) 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 control over financial reporting.

         (t) Solvency. Based on the financial condition of the Company as of the
Closing  Date (and  assuming  that the  Closing  shall have  occurred),  (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  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).

         (u) Certain Fees.  Except as described in Schedule 3.1(u), 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 Investors shall have no obligation with respect to any fees
or with respect to any claims  (other than such fees or  commissions  owed by an
Investor pursuant to written agreements  executed by such Investor which fees or
commissions  shall be the sole  responsibility  of such  Investor) 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.

         (v)  Certain  Registration  Matters.   Assuming  the  accuracy  of  the
Investors'  representations and warranties set forth in Sections 3.2(b)-(e),  no
registration  under the Securities Act is required for the offer and sale of the
Shares by the Company to the Investors under the Transaction  Documents.  Except
as specified in Schedule 3.1(v),  the Company has not granted or agreed to grant
to any Person any rights (including  "piggy-back"  registration  rights) to have
any  securities  of the  Company  registered  with the  Commission  or any other
governmental authority that have not been satisfied.

                                       11
<PAGE>

         (w)  Listing  and  Maintenance   Requirements.   The  Common  Stock  is
registered pursuant to Section 12(g) of the Exchange Act. Except as specified in
the SEC Reports or the Form SB-2, the Company has not, in the one year preceding
the date hereof,  received notice from any Trading Market to the effect that the
Company  is not in  compliance  with the  listing  or  maintenance  requirements
thereof.  The Company  is, and has no reason to believe  that it will not in the
foreseeable   future  continue  to  be,  in  compliance  with  the  listing  and
maintenance  requirements  for  continued  listing  of the  Common  Stock on the
Trading  Market on which the Common  Stock is  currently  listed or quoted.  The
issuance  and  sale of the  Shares  under  the  Transaction  Documents  does not
contravene  the rules and  regulations of the Trading Market on which the Common
Stock is currently listed or quoted,  and no approval of the shareholders of the
Company  thereunder  is  required  for the  Company to issue and  deliver to the
Investors the Shares contemplated by Transaction Documents.  The representations
contained in this  subsection  shall not be construed to attach any liability on
the Company in the event that the Trading Market upon which the Company's common
stock is traded ceases to operate or exist.

         (x) Investment Company. The Company is not, and is not an Affiliate of,
and  immediately  following  the Closing  will not have become,  an  "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

         (y)  Application  of  Takeover  Protections.  The Company has 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 Investors as a
result  of the  Investors  and  the  Company  fulfilling  their  obligations  or
exercising  their  rights under the  Transaction  Documents,  including  without
limitation the Company's issuance of the Shares and the Investors'  ownership of
the Shares.

         (z) No Additional  Agreements.  The Company does not have any agreement
or understanding with any Investor with respect to the transactions contemplated
by the  Transaction  Documents  other  than  as  specified  in  the  Transaction
Documents.

         (aa)  Disclosure.  The Company  confirms that neither it nor any Person
acting on its behalf has  provided  any  Investor  or its  respective  agents or
counsel with any information  that the Company  believes  constitutes  material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information.  The Company understands
and confirms that the Investors will rely on the foregoing  representations  and
covenants in effecting transactions in securities of the Company. All disclosure
provided  to  the  Investors  regarding  the  Company,   its  business  and  the
transactions  contemplated  hereby,  furnished  by or on behalf  of the  Company
(including  the  Company's  representations  and  warranties  set  forth in this
Agreement)  are true and correct and 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.

                                       12
<PAGE>

         (bb) Tax Status.  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) No 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 Investors and certain other  "accredited  investors" within
the meaning of Rule 501 under the Securities Act.

         (dd)  Foreign  Corrupt  Practices.  Neither  the  Company,  nor  to the
knowledge  of the  Company,  any agent or other  person  acting on behalf of the
Company,   has  (i)  directly  or  indirectly,   used  any  funds  for  unlawful
contributions,  gifts,  entertainment  or other  unlawful  expenses  related  to
foreign  or  domestic  political  activity,  (ii) made any  unlawful  payment to
foreign or  domestic  government  officials  or  employees  or to any foreign or
domestic  political  parties or campaigns from corporate funds,  (iii) failed to
disclose  fully any  contribution  made by the  Company  (or made by any  person
acting on its behalf of which the  Company is aware)  which is in  violation  of
law, or (iv)  violated in any  material  respect  any  provision  of the Foreign
Corrupt Practices Act of 1977, as amended.

         (ee) Accountants.  The Company's auditors are Schwarts Levitsky Feldman
LLP. To the  knowledge of the Company,  such  auditors,  who have  certified the
consolidated financial statements included in the Form SB-2 dated June 27, 2005,
as amended,  are  independent  public  accountants  with  respect to the Company
within  the  meaning  of  the  Securities  Act  and  the  applicable  rules  and
regulations  thereunder and is a registered  public  accounting  firm within the
meaning of Section 102 of the Sarbanes-Oxley Act of 2002.

         (ff) Investors'  Purchase of Securities.  The Company  acknowledges and
agrees that each of the  Investors 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 Investor 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  Investor  or any of their  respective  representatives  or
agents in  connection  with this  Agreement  and the  transactions  contemplated
hereby is merely  incidental  to the  Investors'  purchase  of the  Shares.  The
Company further represents to each Investor 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.

                                       13
<PAGE>

         (gg)  Manipulation of Price.  The Company has not, and to its knowledge
no one acting on its behalf has, in  violation  of  applicable  law,  (i) taken,
directly  or  indirectly,  any  action  designed  to cause or to  result  in the
stabilization  or  manipulation  of the price of any  security of the Company to
facilitate  the sale or resale of any of the  Securities or (ii) sold,  bid for,
purchased,  or, paid any  compensation  for soliciting  purchases of, any of the
Securities (other than for the placement agent's placement of the Securities).

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

         (a) Organization; Authority. Such Investor is an entity duly organized,
validly  existing and in good standing under the laws of the jurisdiction of its
organization with the requisite  corporate or partnership power and authority to
enter into and to consummate  the  transactions  contemplated  by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution,  delivery  and  performance  by  such  Investor  of the  transactions
contemplated  by this  Agreement  has  been  duly  authorized  by all  necessary
corporate or, if such Investor is not a corporation,  such partnership,  limited
liability company or other applicable like action, on the part of such Investor.
Each of this  Agreement  and the  Registration  Rights  Agreement  has been duly
executed by such  Investor,  and when  delivered by such  Investor in accordance
with terms hereof,  will constitute the valid and legally binding  obligation of
such Investor,  enforceable  against it in accordance with its terms,  except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other equitable principles of general application.

         (b)  Investment  Intent.  Such  Investor  is  acquiring  the  Shares as
principal for its own account for  investment  purposes only and not with a view
to or for  distributing  or reselling  such Shares or any part thereof,  without
prejudice,  however,  to such Investor's right at all times to sell or otherwise
dispose of all or any part of such Shares in compliance with applicable  federal
and state  securities  laws.  Subject  to the  immediately  preceding  sentence,
nothing  contained herein shall be deemed a  representation  or warranty by such
Investor to hold the Shares for any period of time.  Such  Investor is acquiring
the Shares hereunder in the ordinary course of its business.  Such Investor does
not have any agreement or understanding, directly or indirectly, with any Person
to distribute any of the Shares.

         (c) Investor Status.  At the time such Investor was offered the Shares,
it was,  and at the date  hereof it is,  (i)  knowledgeable,  sophisticated  and
experienced  in  making,  and  qualified  to make,  decisions  with  respect  to
investments in securities  representing an investment  decision  similar to that
involved in the  purchase of the Shares,  including  investments  in  securities
issued by the Company and comparable  entities,  and has had the  opportunity to
request,  receive,  review and consider all  information  it deemed  relevant in
making an  informed  decision to purchase  the Shares;  and (ii) an  "accredited
investor" as defined in Rule 501(a) under the  Securities  Act. Such Investor is
not a registered broker-dealer under Section 15 of the Exchange Act.

                                       14
<PAGE>

         (d) General Solicitation. Such Investor is not purchasing the Shares as
a result of any advertisement,  article, notice or other communication regarding
the Shares  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.

         (e)  Access to  Information.  Such  Investor  acknowledges  that it has
reviewed the  Disclosure  Materials  and that the Investor may not rely on those
portions of the  Registration  Statement  not  applicable to the offering of the
Shares,   including,  but  not  limited  to,  the  sections  entitled  "Plan  of
Distribution,"  "Calculation  of  Registration  Fee," "The  Offering,"  "Selling
Stockholders"  and  "Shares  Eligible  for  Future  Sale".  Such  Investor  also
acknowledges that is has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from,  representatives  of
the Company  concerning  the terms and  conditions of the offering of the Shares
and the merits and risks of investing in the Shares;  (ii) access to information
about the Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its  investment;  and (iii) the  opportunity  to obtain
such additional  information  that the Company  possesses or can acquire without
unreasonable  effort or expense that is necessary to make an informed investment
decision with respect to the  investment.  Neither such  inquiries nor any other
investigation  conducted by or on behalf of such Investor or its representatives
or counsel shall modify,  amend or affect such  Investor's  right to rely on the
truth,  accuracy and completeness of the Disclosure  Materials and the Company's
representations and warranties contained in the Transaction Documents.

         (f) Certain  Trading  Activities.  Such  Investor  has not  directly or
indirectly,  nor  has  any  Person  acting  on  behalf  of or  pursuant  to  any
understanding with such Investor,  engaged in any transactions in the securities
of the Company (including,  without  limitations,  any Short Sales involving the
Company's  securities)  since  the  earlier  to occur of (i) the time  that such
Investor  was first  contacted  by the  Company or Roth  Capital  Partners,  LLC
regarding an  investment  in the Company and (ii) the 30th day prior to the date
of this Agreement. Such Investor 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.  Such  Investor  covenants  that,  until  to the  earlier  of (i) the
Effective  Date (as defined in the  Registration  Rights  Agreement) or (ii) the
180th day after the date of this Agreement,  such Investor will not, directly or
indirectly,  and will not cause  persons  acting on its  behalf to engage in any
Short Sales  involving  the  Company's  securities  or sell the Shares  acquired
pursuant to this Agreement.

         (g) Reliance on Investor  Representations.  Such  Investor  understands
that the Shares  are being  offered  and sold to it in  reliance  upon  specific
exemptions  from the  registration  requirements  of the  Securities Act and the
rules and regulations promulgated thereunder, and state securities laws and that
the  Company  is relying  upon the truth and  accuracy  of,  and the  Investor's

                                       15
<PAGE>

compliance with, the representations,  warranties, agreements,  acknowledgements
and  understandings  of the Investor set forth herein in order to determine  the
availability  of such  exemptions and the eligibility of the Investor to acquire
the Shares.  Under such laws and rules and  regulations the Shares may be resold
without   registration   under  the  Securities  Act  only  in  certain  limited
circumstances.  The Investor  represents that it is familiar with Rule 144 under
the  Securities  Act,  as  presently  in  effect,  and  understands  the  resale
limitations.

         (h) Risks of Investment.  Such Investor understands that its investment
in the Shares involves a significant  degree of risk,  including a risk of total
loss of the Investor's  investment,  and the Investor has full cognizance of and
understands  all of the risk factors  related to the Investor's  purchase of the
Shares,  including,  but not limited to, those set forth under the caption "Risk
Factors"  in the  quarterly  report on Form 10-Q for the period  ending June 30,
2005, as amended.  The Investor  understands that the market price of the Common
Stock  has been  volatile  and that no  representation  is being  made as to the
future value of the Common Stock.  The Investor has the knowledge and experience
in financial and business  matters as to be capable of evaluating the merits and
risks of an  investment  in the Shares and has the ability to bear the  economic
risks of an investment in the Shares.

         (i) No  Approvals.  Such  Investor  understands  that no United  States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any recommendation or endorsement of the Shares.

         (j) Location of Offices. Such Investors principal executive offices are
in the  jurisdiction  set forth  immediately  below the  Investor's  name on the
signature pages hereto.

         (k) Independent  Investment  Decision.  Such Investor has independently
evaluated  the  merits  of its  decision  to  purchase  Shares  pursuant  to the
Transaction Documents,  and such Investor confirms that it has not relied on the
advice of any other  Investor's  business  and/or  legal  counsel in making such
decision.  Such  Investor has not relied on the business or legal advice of Roth
Capital Partners,  LLC or any of its agents, counsel or Affiliates in making its
investment decision  hereunder,  and confirms that none of such Persons has made
any  representations  or  warranties  to such  Investor in  connection  with the
transactions contemplated by the Transaction Documents.

The  Company  acknowledges  and agrees  that no  Investor  has made or makes 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 (a) Shares may only be  disposed  of in  compliance  with state and
federal  securities  laws. In  connection  with any transfer of the Shares other
than  pursuant to an effective  registration  statement,  to the Company,  to an
Affiliate  of an  Investor or in  connection  with a pledge as  contemplated  in

                                       16
<PAGE>

Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, 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  Shares
under the Securities Act.

         (b)  Certificates  evidencing  the Shares will  contain  the  following
legend, until such time as they are not required under Section 4.1(c):

         [NEITHER THESE SECURITIES NOR THE SECURITIES  ISSUABLE UPON EXERCISE OF
         THESE SECURITIES HAVE BEEN REGISTERED]  [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  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] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA
         FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

         The Company  acknowledges  and agrees that an Investor may from time to
time  pledge,  and/or  grant a  security  interest  in some or all of the Shares
pursuant to a bona fide margin  agreement in connection  with a bona fide margin
account  and, if required  under the terms of such  agreement  or account,  such
Investor  may  transfer  pledged or secured  Shares to the  pledgees  or secured
parties.  Such a pledge or transfer  would not be subject to approval or consent
of the Company and no legal  opinion of legal  counsel to the  pledgee,  secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required  in  connection  with a  subsequent  transfer  following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver such  reasonable  documentation  as a pledgee or secured party of Shares
may  reasonably  request in  connection  with a pledge or transfer of the Shares
including the preparation and filing of any required prospectus supplement under
Rule  424(b)(3)  of the  Securities  Act or other  applicable  provision  of the
Securities  Act  to  appropriately  amend  the  list  of  Selling   Stockholders
thereunder.

                                       17
<PAGE>

         (c) Upon an Investor's  written  request,  certificates  evidencing the
Shares containing any legend (including the legend set forth in Section 4.1(b)):
(i) while a registration statement (including a Registration Statement) covering
the resale of such  security  is  effective  under the  Securities  Act, or (ii)
following a sale or transfer of such Shares  pursuant to Rule 144  (assuming the
transferor is not an Affiliate of the  Company),  or (iii) while such Shares are
eligible for sale under Rule 144(k), shall be replaced with certificates that do
not bear such legends as hereafter set forth; provided,  however, in the case of
clause (i) the request is accompanied by a written certification by the Investor
that (A) the Investor has a present  intention to dispose of the Shares  covered
by such Registration  Statement pursuant to a plan of distribution included in a
currently available prospectus related thereto, and (B) the Investor will comply
with the prospectus delivery requirements applicable to such disposition and, in
the case of clause (ii) or (iii),  the request is accompanied by such reasonable
and appropriate customary  representations as may be reasonably requested by the
Company. 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 seven (7) Trading Days  following the delivery by a Investor to the Company
or the Company's transfer agent of a certificate representing Shares issued with
a restrictive  legend (such  seventh  Trading Day, the "Legend  Removal  Date"),
together with the written  request of such Investor  accompanied  by the written
representation  letter in  customary  form,  deliver or cause to be delivered to
such  Investor a  certificate  representing  such  shares  that is free from all
restrictive and other legends. Certificates for Shares subject to legend removal
hereunder  shall be  transmitted  by the  transfer  agent of the  Company to the
Investors  by  crediting  the account of the  Investor's  prime  broker with the
Depository Trust Company System.

         (d) Each Investor,  severally and not jointly with the other Investors,
agrees that the removal of the restrictive legend from certificates representing
Shares  as set  forth in this  Section  4.1 is  predicated  upon  the  Company's
reliance  that the  Investor  will  sell  any  Shares  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 Investor owns Shares, 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. As long as any
Investor owns Shares, if the Company is not required to file reports pursuant to
such laws,  it will  prepare  and  furnish to the  Investors  and make  publicly
available in accordance with Rule 144(c) such information as is required for the
Investors to sell the Shares under Rule 144. The Company further  covenants that
it will take such further action as any holder of Shares may reasonably request,
all to the extent  required  from time to time to enable such Person to sell the
Shares  without  registration  under the Securities Act within the limitation of
the exemptions provided by Rule 144.

         4.3 Integration.  The Company shall not, and shall use its best efforts
to ensure  that no  Affiliate  of the  Company  shall,  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

                                       18
<PAGE>

offer or sale of the Shares in a manner  that  would  require  the  registration
under the  Securities  Act of the sale of the Shares to the  Investors,  or that
would be  integrated  with the offer or sale of the Shares for  purposes  of the
rules and  regulations  of any  Trading  Market in a manner  that would  require
shareholder approval of the sale of the Shares to the Investors.

         4.4  Subsequent  Registrations.  Other  than the  Pending  Registration
Statement  and  the  Registration   Statements  under  the  Registration  Rights
Agreement, prior to the Effective Date of the Registration Statements that cover
the Registrable Securities,  the Company may not file any registration statement
(other than on Form S-8) with the  Commission  with respect to any securities of
the Company.

         4.5 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time)
on the Trading Day following the execution of this  Agreement,  and by 9:00 a.m.
(New York time) on the Trading Day following the Closing Date, the Company shall
issue press releases  disclosing the  transactions  contemplated  hereby and the
Closing.  On the Trading Day  following  the  execution  of this  Agreement  the
Company will file a Current  Report on Form 8-K disclosing the material terms of
the  Transaction  Documents  (and  attach as exhibits  thereto  the  Transaction
Documents),  and on the Trading Day  following the Closing Date the Company will
file  additional  Current  Reports on Form 8-K to disclose the occurrence of the
Closing.  In addition,  the Company will make such other  filings and notices in
the manner and time required by the  Commission  and the Trading Market on which
the Common Stock is listed. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor,  or include the name of any Investor
in any filing with the Commission (other than the Registration Statement and any
exhibits  to filings  made in respect of this  transaction  in  accordance  with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market,  without the prior written  consent of such Investor,  except to
the extent such disclosure is required by law or Trading Market regulations.

         4.6 Limitation on Issuance of Future Priced Securities.  During the six
months  following  the Closing  Date,  the  Company  shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.

         4.7 Indemnification of Investors. In addition to the indemnity provided
in the Registration  Rights  Agreement,  the Company will indemnify and hold the
Investors and their directors, officers,  shareholders,  partners, employees and
agents  (each,  an  "Investor   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  (collectively,  "Losses") that any
such  Investor  Party  may  suffer or incur as a result  of or  relating  to any
misrepresentation,   breach  or  inaccuracy  of  any  representation,  warranty,
covenant  or  agreement  made by the  Company in any  Transaction  Document.  In
addition to the indemnity  contained  herein,  the Company will  reimburse  each
Investor Party for its reasonable  legal and other expenses  (including the cost
of any investigation,  preparation and travel in connection  therewith) incurred
in connection therewith, as such expenses are incurred.

                                       19
<PAGE>

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

         4.9 Listing of Shares.  The Company agrees,  (i) if the Company applies
to have the Common Stock traded on any other Trading Market,  it will include in
such application the Shares,  and will take such other action as is necessary or
desirable  to cause the  Shares to be listed  on such  other  Trading  Market as
promptly as possible,  and (ii) it 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 material  respects with the Company's  reporting,  filing and
other obligations under the bylaws or rules of the Trading Market.

         4.10 Use of Proceeds.  The Company  will use the net proceeds  from the
sale of the Shares hereunder for the purchase of equipment, cost of the offering
and working capital.

                                   ARTICLE V.
                        CONDITIONS PRECEDENT TO CLOSINGS

         5.1  Conditions  Precedent  to  the  Obligations  of the  Investors  to
Purchase  Shares at the  Closing.  The  obligation  of each  Investor to acquire
Shares at the Closing is subject to the satisfaction or waiver by such Investor,
at or before the Closing, of each of the following conditions:

         (a) Representations and Warranties.  The representations and warranties
of the  Company  contained  herein  shall be true and  correct  in all  material
respects as of the date when made and as of the Closing as though made on and as
of such date;

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

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

         (d) Adverse Changes. Since the date of execution of this Agreement,  no
event or series of events shall have occurred that has resulted in or reasonably
would be expected to result in a Material  Adverse Effect (the parties  agreeing
that a decrease in stock price alone shall not be deemed such an event);

                                       20
<PAGE>

         (e) No Suspensions of Trading in Common Stock; Listing.  Trading in the
Common  Stock shall not have been  suspended  by the  Commission  or any Trading
Market  (except for any  suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company) at
any time since the date of  execution  of this  Agreement,  and the Common Stock
shall  have been at all times  since such date  listed for  trading on a Trading
Market;

         (f)  Officer's  Certificate.  The Company  shall have  delivered to the
Investors a  certificate  executed by a duly  authorized  officer of the Company
certifying that (i) the  representations and warranties of the Company contained
herein are true and  correct in all  material  respects as of the date when made
and as of the  Closing as though  made on and as of such date,  (ii) the Company
has  performed,  satisfied  and  complied  in all  material  respects  with  all
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing and (iii)
the items referenced in Sections 5.1(c)-(e) have been satisfied;

         (g) Company Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and

         (h)  Comfort  Letter.  The  Investors  shall  have  received a "comfort
letter"  addressed  to the  Investors  and Roth Capital  Partners,  LLC from the
Company's independent  accountants,  Schwarts Levitsky Feldman LLP in a form and
substance  satisfactory  to the Investors and Roth Capital  Partners,  LLC as of
date hereof.  As  appropriate,  the  Investors  may also  request a  "bring-down
comfort letter" dated as of the Closing.

         5.2  Conditions  Precedent  to the  Obligations  of the Company to Sell
Shares at the  Closing.  The  obligation  of the  Company to sell  Shares at the
Closing is subject to the  satisfaction  or waiver by the Company,  at or before
the Closing, of each of the following conditions:

         (a) Representations and Warranties.  The representations and warranties
of each  Investor  contained  herein  shall be true and correct in all  material
respects as of the date when made and as of the  Closing  Date as though made on
and as of such date;

         (b)  Performance.  Each Investor  shall have  performed,  satisfied and
complied in all material respects with all covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by such Investor at or prior to the Closing;

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

                                       21
<PAGE>

         (d) Investor  Deliverables.  Each  Investor  shall have  delivered  its
Investor Deliverables in accordance with Section 2.2(b) and (c).

                                   ARTICLE VI.
                                  MISCELLANEOUS

         6.1 Fees and  Expenses.  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,  preparation,
execution,  delivery and performance of the Transaction  Documents.  The Company
shall pay all stamp and other  taxes and duties  levied in  connection  with the
sale of the Shares.

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

6.3 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 (provided the sender receives
a machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section prior to 5:30 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
specified in this Section on a day that is not a Trading Day or later than 5:30
p.m. (New York City time) on any Trading Day, (c) the 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
follows:

         If to the Company:       China BAK Battery, Inc.
                                  BAK Industrial Park, No. 1 BAK Street
                                  Kuichong Town, Longgang District
                                  Shenzhen, People's Republic Of China
                                  Attn:  Li Xiangqian, Chief Executive Officer
                                  Facsimile:  011 86 755 89 77 00 04
         and also to

                                  Nevada Agency and Trust Company
                                  50 West Liberty Street, Suite 880
                                  Reno, Nevada  89501
                                  Attn: China BAK Battery, Inc.

                                       22
<PAGE>

         With a copy to:          Andrews Kurth, L.L.P.
                                  1717 Main Street
                                  Dallas, Texas 75201
                                  Attn:  Robin Bradford, Esq.
                                  Facsimile:  (214) 659-4401

         If to an Investor:       To the address set forth under such Investor's
                                  name on the signature pages hereof;

         or such other address as may be designated in writing hereafter, in the
         same manner, by such Person.

         6.4 Amendments;  Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investors holding a majority of the Shares. 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.  No
consideration  shall be offered or paid to any Investor to amend or consent to a
waiver or modification  of any provision of any Transaction  Document unless the
same consideration is also offered to all Investors who then hold Shares.

         6.5 Termination. This Agreement may be terminated prior to the Closing:

         (a) by written agreement of the Investors and the Company; and

         (b) by the Company or an Investor (as to itself but no other  Investor)
upon written  notice to the other,  if the Closing shall not have taken place by
5:30 p.m.  Eastern  time on  September  30,  2005;  provided,  that the right to
terminate this Agreement under this Section 6.5(b) shall not be available to any
Person whose  failure to comply with its  obligations  under this  Agreement has
been the cause of or resulted in the failure of the Initial  Closing to occur on
or before such time.

         In the event of a  termination  pursuant to this  Section,  the Company
shall  promptly  notify all  non-terminating  Investors.  Upon a termination  in
accordance  with this Section 6.5, the Company and the  terminating  Investor(s)
shall not have any further  obligation  or liability  (including as arising from
such  termination)  to the other and no Investor  will have any liability to any
other Investor under the Transaction Documents as a result therefrom.

         6.6 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. This Agreement

                                       23
<PAGE>

shall be construed as if drafted  jointly by the parties,  and no presumption or
burden of proof shall arise favoring or  disfavoring  any party by virtue of the
authorship  of any  provisions  of  this  Agreement  or  any of the  Transaction
Documents.

         6.7  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 the Investors.  Any Investor may assign any
or all of its rights under this  Agreement  to any Person to whom such  Investor
assigns or transfers any Shares,  provided such transferee  agrees in writing to
be bound, with respect to the transferred  Shares, by the provisions hereof that
apply to the "Investors."

         6.8 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 4.7 (as to each
Investor Party).

         6.9 Governing Law. All questions concerning the construction, validity,
enforcement  and  interpretation  of this  Agreement  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
agrees that all  Proceedings  concerning the  interpretations,  enforcement  and
defense  of the  transactions  contemplated  by this  Agreement  and  any  other
Transaction  Documents (whether brought against a party hereto or its respective
Affiliates,  employees or agents) shall be commenced exclusively in the New York
Courts.   Each  party  hereto  hereby  irrevocably   submits  to  the  exclusive
jurisdiction  of the  New  York  Courts  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 the any of the
Transaction Documents),  and hereby irrevocably waives, and agrees not to assert
in  any  Proceeding,  any  claim  that  it is  not  personally  subject  to  the
jurisdiction  of any such New  York  Court,  or that  such  Proceeding  has been
commenced  in an  improper  or  inconvenient  forum.  Each party  hereto  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such  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.  Each  party  hereto  hereby
irrevocably  waives,  to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions  contemplated  hereby.  If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document,  then
the prevailing  party in such Proceeding  shall be reimbursed by the other party
for its  reasonable  attorneys'  fees and other  reasonable  costs and  expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

                                       24
<PAGE>

         6.10  Survival.   The  representations,   warranties,   agreements  and
covenants  contained  herein  shall  survive the Closing and the delivery of the
Shares.

         6.11  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.

         6.12  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.

         6.13 Rescission and Withdrawal Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction  Document and the Company does not timely  perform
its related obligations within the periods therein provided,  then such Investor
may rescind or withdraw,  in its sole  discretion from time to time upon written
notice to the Company,  any relevant  notice,  demand or election in whole or in
part without prejudice to its future actions and rights.

         6.14 Replacement of Shares. If any certificate or instrument evidencing
any Shares 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  Shares.  If a  replacement
certificate or instrument evidencing any Shares is requested due to a mutilation
thereof,  the Company may require  delivery  of such  mutilated  certificate  or
instrument as a condition precedent to any issuance of a replacement.

         6.15  Remedies.  In addition to being  entitled to exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Investors  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.

                                       25
<PAGE>

         6.16 Payment Set Aside.  To the extent that the Company makes a payment
or payments to any Investor pursuant to any Transaction  Document or an Investor
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, 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.

         6.17  Independent  Nature of  Investors'  Obligations  and Rights.  The
obligations of each Investor under any Transaction  Document are several and not
joint with the  obligations  of any other  Investor,  and no  Investor  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Investor  under any  Transaction  Document.  The  decision  of each  Investor to
purchase  Shares  pursuant to the  Transaction  Documents  has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction  Document,  and no action  taken by any Investor  pursuant  thereto,
shall be deemed to constitute the Investors as a partnership,  an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Investors  are in any way acting in  concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Documents. Each
Investor  acknowledges  that no other  Investor  has  acted  as  agent  for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such  Investor  in  connection  with  monitoring  its
investment  in  the  Shares  or  enforcing  its  rights  under  the  Transaction
Documents.  Each Investor 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  Investor  to be joined as an  additional  party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a  transaction  with  multiple  Investors  and not  because it was  required  or
requested to do so by any Investor.

         6.18  Limitation of Liability.  Notwithstanding  anything herein to the
contrary,  the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly,  under any Transaction Document of any and every
nature  whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such  Investor or any  investor,  shareholder  or holder of shares of beneficial
interest of such a Investor  shall be personally  liable for any  liabilities of
such Investor.

                                       26
<PAGE>

         6.19  Construction.  The parties  agree that each of them and/or  their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved  against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]

                                       27
<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.

                                          CHINA BAK BATTERY, INC.

                                          By:___________________________________
                                             Name:
                                             Title:

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

                                       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.

                                    NAME OF INVESTOR

                                    ____________________________________________

                                    By:_________________________________________
                                       Name:
                                       Title:

                                    Investment Amount: $________________________

                                    Tax ID No.:_________________________________

                                    ADDRESS FOR NOTICE

                                    c/o:________________________________________

                                    Street:_____________________________________

                                    City/State/Zip:_____________________________

                                    Attention:__________________________________

                                    Tel:________________________________________

                                    Fax:________________________________________

                                    DELIVERY INSTRUCTIONS
                                    (if different from above)

                                    c/o:________________________________________

                                    Street:_____________________________________

                                    City/State/Zip:_____________________________

                                    Attention:__________________________________

                                    Tel:________________________________________

                                       29
<PAGE>

                                                                  EXECUTION COPY

                                COMPANY SCHEDULES
                                -----------------

<PAGE>

                                    EXHIBIT A
                                    ---------

                      FORM OF REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                    EXHIBIT B
                                    ---------

                         FORM OF COMPANY COUNSEL OPINION

<PAGE>

                                    EXHIBIT C
                                    ---------

                         FORM OF NEVADA COUNSEL OPINION

<PAGE>

                                    EXHIBIT D
                                    ---------

                               PRC COUNSEL OPINION

<PAGE>

                                    EXHIBIT E
                                    ---------

                                HONG KONG OPINION

<PAGE>

                                    EXHIBIT F
                                    ---------

                              THE ESCROW AGREEMENT

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