Document:

FORM
      OF DEBENTURE

    

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
      FOR
      SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      OR
      AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.

    

    
      	Class A
              No. 07-01A-
              1 	
              US
                $_____________ 

            

    

     

    SKYSTAR
      BIO-PHARMACEUTICAL COMPANY

    

    8%
      CONVERTIBLE DEBENTURE SERIES 07-01 

    DUE
      _______, 20092 

    

    THIS
      DEBENTURE is one of a duly authorized issue of up to $__________3 
      in Class
      A and Class B Debentures of SKYSTAR
      BIO-PHARMACEUTICAL COMPANY,
      a
      corporation organized and existing under the laws of the State of Nevada (the
      "Company") designated as its 8% Convertible Debentures Series
      07-01.

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to ___________________, the registered
      holder hereof (the "Holder"), the principal sum of ___________________ and
      00/100 Dollars (US $ ___________________) on ______, 20094 
      (the
“Maturity Date”) and to pay interest on the principal sum outstanding from time
      to time in arrears at the rate of 8% per annum, accruing from ______________,
      20075 ,
      the
      date of initial issuance of this Debenture (the “Issue Date”), on the date
      (each, an “Interest Payment Date”) which is the earliest of (i) the next
      Prepayment Date (as defined below), (ii) the next Conversion Date (as defined
      below), or (iii) the Maturity Date, as the case may be. Interest shall accrue
      monthly (pro-rated on a daily basis for any period longer or shorter than a
      month) from the later of the Issue Date or the previous Interest Payment Date
      and shall be payable in cash or, at the Company’s option but subject to the
      other provisions of this Debenture, in Common Stock. If not paid in full on
      an
      Interest Payment Date, interest shall be fully cumulative and shall accrue
      on a
      daily basis, based on a 365-day year, monthly or until paid, whichever is
      earlier. Additional provisions regarding the payment of interest are provided
      in
      Section 4(D) below (the terms of which shall govern as if this sentence were
      not
      included in this Debenture). 

     

    _________________

    
      
        1Insert
          unique Debenture number for each issuance.

      

      
        2Insert
          date which is second anniversary of Closing Date.

      

      
        3Insert
          the Aggregate Purchase Price.

      

      
        4See
          fn
          2.

      

      
        5Insert
          the Closing Date. 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    This
      Debenture is being issued pursuant to the terms of the Securities Purchase
      Agreement, dated February 26, 2007 (the “Securities Purchase Agreement”), to
      which the Company and the Holder (or the Holder’s predecessor in interest) are
      parties. Capitalized terms not otherwise defined herein shall have the meanings
      ascribed to them in the Securities Purchase Agreement.

    

    This
      Debenture is subject to the following additional provisions:

    

    1. The
      Debentures will initially be issued in denominations determined by the Company,
      but are exchangeable for an equal aggregate principal amount of Debentures
      of
      different denominations, as requested by the Holder surrendering the same.
      No
      service charge will be made for such registration or transfer or
      exchange.

    

    2. The
      Company shall be entitled to withhold from all payments of principal of, and
      interest on, this Debenture any amounts required to be withheld under the
      applicable provisions of the United States income tax laws or other applicable
      laws at the time of such payments, and Holder shall execute and deliver all
      required documentation in connection therewith.

    

    3. This
      Debenture has been issued subject to investment representations of the original
      purchaser hereof and may be transferred or exchanged only in compliance with
      the
      Securities Act of 1933, as amended (the "Act"), and other applicable state
      and
      foreign securities laws and the terms of the Securities Purchase Agreement.
      In
      the event of any proposed transfer of this Debenture, the Company may require,
      prior to issuance of a new Debenture in the name of such other person, that
      it
      receive reasonable transfer documentation that is sufficient to evidence that
      such proposed transfer complies with the Act and other applicable state and
      foreign securities laws and the terms of the Securities Purchase Agreement.
      Prior to due presentment for transfer of this Debenture, the Company and any
      agent of the Company may treat the person in whose name this Debenture is duly
      registered on the Company's Debenture Register as the owner hereof for the
      purpose of receiving payment as herein provided and for all other purposes,
      whether or not this Debenture be overdue, and neither the Company nor any such
      agent shall be affected by notice to the contrary.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    4. A. 
      (i) At
      any time on or after the Commencement Date (as defined below) and prior to
      the
      time this Debenture is paid in full in accordance with its terms (including,
      without limitation, after the Prepayment Date or the Mandatory Conversion Date,
      or after the occurrence of an Event of Default, as those terms are defined
      below, or, if the Debenture is not fully paid or converted after the Maturity
      Date), the Holder of this Debenture is entitled, at its option, subject to
      the
      following provisions of this Section 4, to convert this Debenture at any time
      into shares of Common Stock, $0.001 par value ("Common Stock"), of the Company
      at the Conversion Price (as defined below). Any such conversion is referred
      to
      as a “Voluntary Conversion.” The minimum principal amount of each Voluntary
      Conversion shall be $25,000 or, if the outstanding principal amount of this
      Debenture is less than $25,000, the outstanding principal balance of this
      Debenture.

    

    (ii)
      On
      the Maturity Date the Company shall pay the principal and accrued interest
      (through the actual date of payment) of any portion of this Debenture which
      is
      then outstanding.

    

    (iii)
      For
      purposes of this Debenture, the following terms shall have the meanings
      indicated below: 

    

    “Commencement
      Date” means the Issue Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    “Conversion
      Price” means (x) with respect to a Voluntary Conversion or a Mandatory
      Conversion (as defined herein), the lowest of (i) the Fixed Conversion Price,
      (ii) the Lowest Fixed Conversion Price (which amount is subject to adjustment
      as
      provided herein), or (iii) during the pendency of an Event of Default (as
      defined below), the Prepayment Conversion Price, and (y) with respect to a
      conversion in connection with a Required Prepayment (as defined herein), the
      Payment Conversion Price.

    

    “Fixed
      Conversion Price” means the amount equal to $1.00 (such amount is subject to
      adjustment as provided herein).

    

    “Payment
      Conversion Price” means, as of the relevant date, the lowest of (x) the
      Prepayment Conversion Price, (y) the Fixed Conversion Price or (z) the Lowest
      Fixed Conversion Price.

    

    “Prepayment
      Conversion Price” means (i) the VWAP for the five (5) Regular Trading Days
      ending on the Trading Day immediately before the relevant Prepayment Date or
      the
      relevant Conversion Date, as the case may be, multiplied by (ii) seventy percent
      (70%).

    

    “VWAP”
      means the volume weighted average price of the Common Stock on the Principal
      Trading Market for the relevant Regular Trading Day(s), as reported by the
      Reporting Service.

    

    “Reporting
      Service” means Bloomberg LP or if that service is not then reporting the
      relevant information regarding the Common Stock, a comparable reporting service
      of national reputation selected by a Majority in Interest of the Holders and
      reasonably acceptable to the Company.

    “Lowest
      Fixed Conversion Price” means the lowest New Transaction Price from any New
      Transaction (as those terms are defined in the Securities Purchase Agreement)
      (which amount, if any, is subject to subsequent adjustment as provided
      herein).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    “Acceptable
      Trading Market” means any of the following: (w) the Over the Counter Bulletin
      Board Market, (x) the NASDAQ Capital or National Market, (y) the American Stock
      Exchange or (z) the New York Stock Exchange.

    

    “Prepayment
      Date” means either a Voluntary Prepayment Date or a Required Prepayment Date (as
      those terms are defined below).

    

    “Conversion
      Shares” has the meaning ascribed to in Section 4(I) hereof.

     

    B. A
      Voluntary Conversion shall be effectuated by the Holder by faxing a notice
      of
      conversion (“Notice of Conversion”) to the Company as provided in this
      paragraph. The Notice of Conversion shall be executed by the Holder of this
      Debenture and shall evidence such Holder's intention to convert this Debenture
      or a specified portion hereof in the form annexed hereto as Exhibit A. Delivery
      of the Notice of Conversion shall be accepted by the Company by hand, mail
      or
      courier delivery at the address specified in said Exhibit A or at the facsimile
      number specified in said Exhibit A (each of such address or facsimile number
      may
      be changed by notice given to the Holder in the manner provided in the
      Securities Purchase Agreement). 

     

    C. Notwithstanding
      any other provision hereof or of any of the other Transaction Agreements, in
      no
      event (except (i) as specifically provided herein as an exception to this
      provision, or (ii) while there is outstanding a tender offer for any or all
      of
      the shares of the Company’s Common Stock) shall the Holder be entitled to
      convert any portion of this Debenture, or shall the Company have the obligation
      to convert such Debenture (and the Company shall not have the right to pay
      interest hereon in shares of Common Stock) to the extent that, after such
      conversion or issuance of stock in payment of interest, the sum of (1) the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates (other than shares of Common Stock which may be deemed beneficially
      owned through the ownership of the unconverted portion of the Debentures or
      other convertible securities or of the unexercised portion of warrants or other
      rights to purchase Common Stock), and (2) the number of shares of Common Stock
      issuable upon the conversion of the Debentures with respect to which the
      determination of this proviso is being made, would result in beneficial
      ownership by the Holder and its affiliates of more than 4.99% of the outstanding
      shares of Common Stock (after taking into account the shares to be issued to
      the
      Holder upon such conversion). For purposes of the proviso to the immediately
      preceding sentence, beneficial ownership shall be determined in accordance
      with
      Section 13(d) of the Securities Exchange Act of 1934, as amended, except as
      otherwise provided in clause (1) of such sentence. The Holder, by its acceptance
      of this Debenture, further agrees that if the Holder transfers or assigns any
      of
      the this Debenture to a party who or which would not be considered such an
      affiliate, the Debenture issued to such transferee or assignee shall include
      the
      provisions of this Section 4(C). Nothing herein shall preclude the Holder from
      disposing of a sufficient number of other shares of Common Stock beneficially
      owned by the Holder so as to thereafter permit the continued conversion of
      this
      Debenture.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    D. (i)
      Subject to the terms of Section 4(C) and to the other terms of this Section
      4(D), interest on the principal amount of this Debenture converted pursuant
      to a
      Notice of Conversion shall be due and payable, at the option of the Company,
      in
      cash or, subject to the conditions of the next sentence, in shares of Common
      Stock on the Interest Payment Date. Anything herein to the contrary
      notwithstanding, the Company may elect to pay interest in shares of Common
      Stock
      if, but only if, the shares of Common Stock issuable to the Holder as such
      payment are covered by an effective Registration Statement.

    

    (ii)
      If
      the interest payable in connection with a Voluntary Conversion is to be paid
      in
      cash, the Company shall make such payment within three (3) Trading Days after
      the Interest Payment Date. If the interest is not paid by such third Trading
      Day, the interest must be paid in Common Stock in accordance with the provisions
      of this Section 4(D), unless the Holder consents otherwise in each specific
      instance.

    

    (iii)
      Additional provisions regarding the payment of interest on the principal amount
      of this Debenture are set forth in the following provisions of this Section
      4.

    

    (iv)
      If
      interest is to be paid in Common Stock (whether at the election of the Company
      or as required hereunder), the number of shares of Common Stock to be received
      shall be determined by dividing the dollar amount of the interest by the Payment
      Conversion Price in effect on the relevant Interest Payment Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    E. Reference
      is made to the provisions of Section 4(g) of the Securities Purchase Agreement,
      the terms of which are incorporated herein by reference. The Conversion Price
      and other provisions of this Debenture shall be adjusted as provided in the
      applicable provisions of said Section 4(g) of the Securities Purchase
      Agreement.

    

    F. (i)
      Anything in the other provisions of this Debenture or any of the other
      Transaction Agreements to the contrary notwithstanding, the Company shall have
      the right, in its discretion, to prepay the outstanding principal of this
      Debenture, together with all accrued interest thereon, in whole or in part,
      on
      the terms and conditions provided in this Section 4(F). If the Company elects
      to
      make such a prepayment, the Company shall give the Holder a written notice
      (the
“Voluntary Prepayment Notice”) of its election to prepay all or a portion of
      then outstanding Debenture. The prepayment amount shall be equal to the sum
      of
      (x) the Applicable Prepayment Percentage (as defined below) of the principal
      of
      this Debenture being prepaid, plus (y) the accrued interest on such principal
      through the Voluntary Prepayment Date. Additional terms regarding this
      prepayment right are provided below. The term “Applicable Prepayment Percentage”
means (1) through and including the first annual anniversary of the Issue Date,
      one hundred fifty percent (150%) and (2) thereafter, one hundred twenty percent
      (120%). 

    

    (ii)
      The
      Company may give a Voluntary Prepayment Notice and make the prepayment only
      if,
      (x) on the date on which the Voluntary Prepayment Notice is given and (y) on
      every Trading Day thereafter through and including the Voluntary Prepayment
      Date,

    

    (x)
      there
      is an effective Registration Statement covering the resale of the shares
      issuable on conversion of this Debenture, and

    

    (y)
      there
      is no Event of Default hereunder or any event which, with the giving of notice
      or the passage of time (that is, without regard to any grace or cure periods),
      could be declared an Event of Default hereunder, and 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (z)
      the
      Common Stock of the Company, including any Conversion Shares to be issued on
      conversion of the Debenture during the Prepayment Conversion Period, are
      eligible for trading on an Acceptable Trading Market.

    

    (iii)
      The
      Voluntary Prepayment Notice shall specify (x) the principal amount of the
      Debenture being prepaid by the Company (the “Voluntary Principal Prepayment
      Amount”), (y) the date (the “Voluntary Prepayment Date”), which shall be not
      less than twenty (20) and not more than forty (40) Trading Days after the
      Voluntary Prepayment Notice is received by the Holder, on which such prepayment
      will be made, and (z) identify the bank (the “Prepayment Bank”) where the
      Voluntary Prepayment Funds (as defined below) have been deposited. The Voluntary
      Prepayment Notice shall be accompanied by the Prepayment Bank’s confirmation to
      the Holder that funds (the “Voluntary Prepayment Funds”) equal to the Voluntary
      Prepayment Amount have been deposited with the Prepayment Bank and instructions
      for the method by which the Holder can provide instructions to the Prepayment
      Bank to make payment of the Voluntary Prepayment Funds to the Holder (such
      payment to made by check or wire, as specified by the Holder) on the Voluntary
      Prepayment Date.

    

    (iv)
      Even
      after the issuance of a Voluntary Prepayment Notice, the Holder may continue
      to
      convert this Debenture as provided in the other provisions of this Debenture
      until this Debenture is paid in full. If the Holder converts any portion of
      this
      Debenture after the date of the Voluntary Prepayment Notice and prior to the
      payment of the Voluntary Prepayment Funds to the Holder (the “Prepayment
      Conversion Period”), so that the then outstanding principal of this Debenture is
      less than the Voluntary Prepayment Principal Amount, the Company shall notify
      the Prepayment Bank of the then outstanding principal of this Debenture
      (accompanied by a copy of the relevant Notice of Conversion issued by the
      Holder); provided, however, if the Voluntary Prepayment Principal Amount is
      less
      than the principal of the then Unconverted Debenture, any such conversions
      made
      during the Prepayment Conversion Period shall be deemed made in the following
      order of priority: (x) first, out of principal of the Unconverted Debenture
      in
      excess of the Voluntary Prepayment Principal Amount, and (y) then, out of the
      Voluntary Prepayment Principal Amount. To the extent that any conversions made
      during the Prepayment Conversion Period are deemed made out of the Voluntary
      Prepayment Principal Amount, the Voluntary Prepayment Funds will then be
      adjusted to and be deemed to be equal the sum of (x) the Applicable Prepayment
      Percentage of the adjusted principal of this Debenture being prepaid, plus
      (y)
      the accrued interest on such principal through the Voluntary Prepayment
      Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (v)
      If
      the Voluntary Prepayment Funds are not timely paid or made available to the
      Holder, the Holder will have the option, exercisable at any time prior to the
      actual payment of the Voluntary Prepayment Funds (together with any additional
      interest accruing on the Prepayment Principal Amount after the Prepayment Date)
      to effect either or both of the following actions: (x) cancellation, ab initio,
      of the prepayment contemplated by the Voluntary Prepayment Notice and (y)
      cancellation of the Company’s prepayment right under this Section
      4(F).

    

    G. (i)
      Anything in the other provisions of this Debenture or any of the other
      Transaction Agreements to the contrary notwithstanding, the Company shall have
      the right, on the terms and conditions provided in this Section 4(G), to require
      the Holder to convert all or a specified portion of the principal of this
      Debenture, together with all accrued interest thereon, on the Mandatory
      Conversion Date (as defined below). On the Mandatory Conversion Date, without
      further action by the Holder, the outstanding principal and accrued but unpaid
      interest on this Debenture shall be deemed converted into Common Stock (x)
      with
      respect to such principal, at the Conversion Price in effect on such Mandatory
      Conversion Date, and (y) with respect to the interest at the applicable rate
      contemplated by the provisions of Section 4(D)(iv) hereof on such Mandatory
      Conversion Date. Any conversion contemplated by this Section 4(G) shall be
      subject to the following terms and conditions of this Section 4(G), to the
      extent relevant.

    

    (ii)
      Subject to the provisions of subparagraph (iii) below, if, for each of twenty
      (20) consecutive Trading Days (the twentieth of such consecutive Trading Days,
      the “Target Trading Day”),

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (A)
      the
      Sale Price (as defined below) for the Common Stock is more than the Target
      Price
      (as defined below), and

    

    (B)
      the
      Daily Volume (as defined below) is more than the Target Volume (as defined
      below),

    

    the
      Company will have the right, in its discretion, to give the Holder a written
      notice (a “Mandatory Conversion Notice”) within five (5) Trading Days after the
      Target Trading Day. The Mandatory Conversion Notice shall state that the date
      specified in such notice (the “Mandatory Conversion Date”), which date shall be
      no earlier than twenty (20) Trading Days and no later than sixty (60) Trading
      Days after the Target Trading Day, shall be deemed a Mandatory Conversion
      Date.

    

    (iii)
      Anything herein to the contrary notwithstanding, the Company may give a
      Mandatory Conversion Notice and make the conversions contemplated thereby only
      if, (x) on the date on which the Mandatory Conversion Notice is given and (y)
      on
      every Trading Day thereafter through and including the Mandatory Conversion
      Date, 

    

    (x)
      there
      is an effective Registration Statement covering the resale of the shares
      issuable on conversion of this Debenture to the extent contemplated by the
      Mandatory Conversion Notice, and

    

    (y)
      there
      is no Event of Default hereunder or any event which, with the giving of notice
      or the passage of time (that is, without regard to any grace or cure periods),
      could be declared an Event of Default hereunder, and 

    

    (z)
      the
      Common Stock of the Company, including the Conversion Shares to be issued on
      the
      Mandatory Conversion Date, are eligible for trading on an Acceptable Trading
      Market.

    

    (iv)
      The
      term “Sale Price” means the 4:00 P.M. closing sale price of the Common Stock on
      the Principal Trading Market on the relevant Trading Day(s), as reported by
      the
      Reporting Service for the relevant date. The term “Target Price” means $2.75
      (which amount is subject to adjustment to the same extent that the Fixed
      Conversion Price is adjusted other than pursuant to Section 4(g) of the
      Securities Purchase Agreement). The term “Daily Volume” means the trading volume
      for each relevant Trading Day, as reported by the Reporting Service. The term
      “Target Volume” means 45,000 shares of Common Stock (which amount is subject to
      adjustment to the same extent that the Fixed Conversion Price is adjusted other
      than pursuant to Section 4(g) of the Securities Purchase Agreement and other
      than as a result of reverse stock split).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (v)
      If
      the Company properly and timely gives a Mandatory Conversion Notice and all
      of
      the conditions referred in subparagraph (iii) above are satisfied, the
      conversion contemplated by the Mandatory Conversion Notice will be effected,
      subject to the provisions of subparagraph (vi) below, on the Mandatory
      Conversion Date. If any of such conditions is not true, the Mandatory Conversion
      Notice shall be deemed canceled ab initio.

    

    (vi)
      The
      provisions of Section 4(C) shall apply on the Mandatory Conversion Date. If,
      as
      a result of such provisions, the entire portion of the Debenture provided for
      in
      the Mandatory Conversion Notice is not converted on the Mandatory Conversion
      Date, the Company, without further notice to the Holder, shall be deemed to
      have
      timely given one or more Mandatory Conversion Notices for the balance of such
      portion providing for successive Mandatory Conversion Dates, each of which
      deferred date is ten (10) Trading Days after the immediately preceding Mandatory
      Conversion Date, until such portion of this Debenture is fully converted or
      paid
      in full (or some combination thereof). If, and to the extent that, the
      provisions of Section 4(C) apply on the Mandatory Conversion Date, the Holder
      may not declare an Event of Default with respect to the portion of the Debenture
      which is not converted on such date with respect to clauses (a), (b), (d),
      (e)
      (but only to the extent such provision applies to Transaction Agreements other
      than the Registration Rights Agreement and the Warrant) or (i) of Section 14(i)
      hereof; provided, however, that this provision shall not limit the Holder’s
      rights to declare an Event of Default with respect to any other unconverted
      outstanding portion of this Debenture. 

    

    (vii)
      Prior to a Mandatory Conversion Date, including after receiving a Mandatory
      Conversion Notice, the Holder shall continue to have the right to convert any
      outstanding portion of this Debenture in accordance with its terms until it
      is
      fully converted. Any such conversion shall be applied against the mandatory
      conversion contemplated by the Mandatory Conversion Notice.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (viii)
      If, as of the Mandatory Conversion Date specified in the relevant Mandatory
      Conversion Notice, the Company timely pays in full any accrued interest payable
      with respect to the portion of the Debenture contemplated by the Mandatory
      Conversion Notice and issues all shares then converted in accordance with,
      and
      subject to the other provisions of this Section 4(G), then interest shall cease
      to accrue on any remaining Unconverted Debenture to the extent included in
      the
      Mandatory Conversion Notice. If, subject to such other provisions, such payment
      is not made in full on or before the Mandatory Conversion Date, interest shall
      continue to accrue on the unpaid portion until the earliest date after the
      initial Mandatory Conversion Date on which all accrued interest through the
      date
      of payment has in fact been paid, but cease to accrue thereafter. If the
      Mandatory Conversion Notice does not contemplate that the entire outstanding
      Debenture is to be converted on the Mandatory Conversion Date, then Interest
      shall continue to accrue and be payable, without regard to the provisions of
      this Section 4(G) with respect to any portion of the Debenture not so included
      in the Mandatory Conversion Notice. 

    

    H. (i)
      Anything herein to the contrary notwithstanding, the Company shall make payments
      in reduction of the obligations represented by this Debenture in accordance
      with
      the terms of this Section 4(H).

    

    (ii)
      Commencing on the first Trading Day of the calendar month following the date
      on
      which the third monthly anniversary of the Issue Date occurs, and on the first
      Trading Day of each subsequent calendar month (each such date, a “Required
      Prepayment Date”), the Company shall pay to the Holder an amount (the “Required
      Principal Payment”) equal to four and 77/100 percent (4.77%) of the original
      principal of this Debenture but not more than the then outstanding principal
      of
      this Debenture, together with accrued but unpaid interest thereon (the “Required
      Interest Payment”). With respect to each Required Prepayment Date, the relevant
      Required Principal Payment and the relevant Required Interest Payment are
      referred to collectively as the “Required Payment.”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (iii)
      For
      each Required Prepayment Date which is prior to the Effective Date, the Required
      Payment shall be made in cash. If less than the full amount is paid, the amount
      actually paid shall be applied in the following order of priority (x) first,
      to
      the Required Interest Payment; and (y) then to principal of the Debenture.
      The
      failure to pay such full amount, however, may result in an Event of
      Default.

    

    (iv)
      For
      each Required Prepayment Date which is on or after the Effective Date, the
      Company may, subject to the following provisions of this Section 4(H), elect
      to
      make the Required Payment in cash or in shares of Common Stock. Unless the
      Company notifies the Holder at least thirty (30) calendar days in advance of
      the
      relevant Required Prepayment Date that it is electing to pay the Required
      Payment in shares of Common Stock (subject to the following provisions of this
      Section 4(H), the Company will be required to make such payment in cash on
      the
      Required Payment Date. Notwithstanding the foregoing, the Company may only
      pay
      the Required Payment in shares if (x) the Registration Statement covering the
      Conversion Shares to be issued in such payment is effective on the Payment
      Date
      and on the date the Conversion Shares are delivered to the Holder, and (y)
      the
      VWAP for the five (5) Trading Days used in the computation for the relevant
      Payment Conversion Price (the “Required Prepayment VWAP”) is not less than $0.50
      (the “Floor VWAP Price”; which Floor VWAP Price may be adjusted for any reverse
      stock split).

    

    (v)
      If,
      with respect to any Required Prepayment Date, the Company elects or is required
      to pay the Required Payment in cash, the amount of such payment shall be equal
      to the sum of (i) the Applicable Required Percentage (as defined below) of
      the
      Required Principal Payment) and (ii) one hundred percent (100%) of the Required
      Interest Payment and of any other amounts due hereunder. If less than the full
      amount is paid, the amount actually paid shall be applied in the following
      order
      of priority (w) first, to the Required Interest Payment; (x) then, to any other
      amounts other than principal due hereunder; (y) then, to a prepayment fee equal
      to (1) until the first annual anniversary of the Issue Date, to the extent
      of
      fifteen percent (15%) of the amount of the Required Principal Payment, or (2)
      on
      and after the first annual anniversary of the Issue Date, to the extent of
      twenty-five percent (25%) of the amount of the Required Principal Payment;
      and
      (z) then to principal of the Debenture. The failure to pay such full amount,
      however, may result in an Event of Default. If the entire amount is paid, the
      outstanding principal of the Debenture shall be reduced by the amount of the
      Required Principal Payment. The term “Applicable Required Percentage” means (1)
      until the first annual anniversary of the Issue Date, one hundred fifteen
      percent (115%), and (2) on and after the first annual anniversary of the Issue
      Date, one hundred twenty-five percent (125%).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (vi)
      If
      the Required Payment is made in stock, as provided herein, the Company shall
      issue shares to the Holder equal to the Required Payment divided by the Payment
      Conversion Price. 

    

    (vii)
      The
      provisions of Section 4(C) shall apply on each Required Prepayment Date. If,
      as
      a result of such provisions, the entire portion of the Required Payment is
      not
      converted on the relevant Required Prepayment Date, then there shall be one
      or
      more successive deferred Required Prepayment Dates, each of which deferred
      date
      is five (5) Trading Days after the immediately preceding Required Prepayment
      Date, until the Required Payment is fully converted or paid in full (or some
      combination thereof).

    

    (viii)
      The provisions of this Section 4(H) notwithstanding, the Holder shall continue
      to have the right to convert any outstanding portion of this Debenture in
      accordance with its terms until it is fully converted or paid to the same extent
      as if this Section 4(H) were not included in this Debenture. 

    

    I. (i)
      The
      following provisions apply to the issuances of Common Stock in payment of the
      amounts due under this Debenture, whether as principal or interest, as provided
      in the preceding provisions of this Section 4.

    

    (ii)
      No
      fractional shares of Common Stock or scrip representing fractions of shares
      will
      be issued on conversion, but the number of shares issuable shall be rounded
      to
      the nearest whole share.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (iii)
      Each of the following dates shall constitute a “Conversion Date”: 

    

    (x)
      For a
      Voluntary Conversion, the date on which the Holder faxes or otherwise delivers
      a
      Notice of Conversion to the Company so that it is received by the Company on
      or
      before such specified date shall be a “Conversion Date” for all purposes of this
      Debenture and the other Transaction Agreements. 

    

    (y)
      For a
      Mandatory Conversion, the Mandatory Conversion Date shall be a “Conversion Date”
with respect to the relevant shares for all purposes of this Debenture and
      the
      other Transaction Agreements, without the need for the Holder to submit a Notice
      of Conversion.

    

    (z)
      For a
      Required Payment which is made in stock, the Required Payment Date shall be
      deemed to be a “Conversion Date” with respect to the relevant shares for all
      purposes of this Debenture and the other Transaction Agreements, without the
      need for the Holder to submit a Notice of Conversion.

    

    (iv)
      All
      shares issuable with respect to a Conversion Date shall be deemed “Conversion
      Shares” for all purposes of this Debenture and the other Transaction Agreements.
      Certificates representing the relevant Conversion Shares (“Conversion
      Certificates”) will be delivered to the Holder at (x) with respect to a
      Voluntary Conversion, at the address specified in the relevant Notice of
      Conversion, and (y) with respect to any conversion contemplated hereby to the
      address separately identified by the Holder (and if none, the Holder’s the
      Holder’s address for notices as contemplated by the Securities Purchase
      Agreement, which address the Holder may change from time to time in the manner
      provided therein), via express courier, by electronic transfer or otherwise,
      within three (3) Trading Days (such third Trading Day, the “Delivery Date”)
      after the relevant Conversion Date. The Holder shall be deemed to be the holder
      of the shares issuable to it in accordance with the relevant provisions of
      this
      Section 4 on the Conversion Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    J. Any
      payments under this Debenture shall be applied in the following order of
      priority: (i) first to accrued interest; (ii) then, to any amounts (other than
      principal) due hereunder and (iii) then, to principal in the inverse order
      of
      maturity. 

    

    5.
       Subject
      to the terms of the Securities Purchase Agreement, no provision of this
      Debenture shall alter or impair the obligation of the Company, which is absolute
      and unconditional, to pay the principal of, and interest on, this Debenture
      at
      the time, place, and rate, and in the coin or currency or where contemplated
      herein in shares of its Common Stock, as applicable, as herein prescribed.
      This
      Debenture and all other Debentures now or hereafter issued of similar terms
      are
      direct obligations of the Company.

    

    6. No
      recourse shall be had for the payment of the principal of, or the interest
      on,
      this Debenture, or for any claim based hereon, or otherwise in respect hereof,
      against any incorporator, shareholder, officer or director, as such, past,
      present or future, of the Company or any successor corporation, whether by
      virtue of any constitution, statute or rule of law, or by the enforcement of
      any
      assessment or penalty or otherwise, all such liability being, by the acceptance
      hereof and as part of the consideration for the issue hereof, expressly waived
      and released.

    

    7. All
      payments contemplated hereby to be made “in cash” shall be made in immediately
      available good funds of United States of America currency by wire transfer
      to an
      account designated in writing by the Holder to the Company (which account may
      be
      changed by notice similarly given). All payments of cash and each delivery
      of
      shares of Common Stock issuable to the Holder as contemplated hereby shall
      be
      made to the Holder at the address last appearing on the Debenture Register
      of
      the Company as designated in writing by the Holder from time to time; except
      that the Holder can designate, by notice to the Company, a different delivery
      address for any one or more specific payments or deliveries.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    8. If,
      for
      as long as this Debenture remains outstanding, the Company enters into a merger
      (other than where the Company is the surviving entity) or consolidation with
      another corporation or other entity or a sale or transfer of all or
      substantially all of the assets of the Company to another person (collectively,
      a "Sale"), the Company will require, in the agreements reflecting such
      transaction, that the surviving entity expressly assume the obligations of
      the
      Company hereunder. Notwithstanding the foregoing, if the Company enters into
      a
      Sale and the holders of the Common Stock are entitled to receive stock,
      securities or property in respect of or in exchange for Common Stock, then
      as a
      condition of such Sale, the Company and any such successor, purchaser or
      transferee will agree that the Debenture may thereafter be converted on the
      terms and subject to the conditions set forth above into the kind and amount
      of
      stock, securities or property receivable upon such merger, consolidation, sale
      or transfer by a holder of the number of shares of Common Stock into which
      this
      Debenture might have been converted immediately before such merger,
      consolidation, sale or transfer, subject to adjustments which shall be as nearly
      equivalent as may be practicable. In the event of any such proposed Sale, (i)
      the Holder hereof shall have the right to convert by delivering a Notice of
      Conversion to the Company within fifteen (15) days of receipt of notice of
      such
      Sale from the Company, except that Section 4(C) shall not apply to such
      conversion.

    9. If,
      at
      any time while any portion of this Debenture remains outstanding, the Company
      spins off or otherwise divests itself of a part of its business or operations
      or
      disposes of all or of a part of its assets in a transaction (the “Spin Off”) in
      which the Company, in addition to or in lieu of any other compensation received
      and retained by the Company for such business, operations or assets, causes
      securities of another entity (the “Spin Off Securities”) to be issued to
      security holders of the Company, the Company shall cause (i) to be reserved
      Spin
      Off Securities equal to the number thereof which would have been issued to
      the
      Holder had all of the Holder’s Debentures outstanding on the record date (the
“Record Date”) for determining the amount and number of Spin Off Securities to
      be issued to security holders of the Company (the “Outstanding Debentures”) been
      converted as of the close of business on the Trading Day immediately before
      the
      Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the
      Holder on the conversion of all or any of the Outstanding Debentures, such
      amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
      multiplied by (y) a fraction, of which (I) the numerator is the principal amount
      of the Outstanding Debentures then being converted, and (II) the denominator
      is
      the principal amount of the Outstanding Debentures.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    10. If,
      at
      any time while any portion of this Debenture remains outstanding, the Company
      effectuates a stock split or reverse stock split of its Common Stock or issues
      a
      dividend on its Common Stock consisting of shares of Common Stock, the
      Conversion Price or the Lowest Fixed Conversion Price, if any, and any other
      fixed amounts calculated as contemplated hereby or by any of the other
      Transaction Agreements shall be equitably adjusted to reflect such action.
      By
      way of illustration, and not in limitation, of the foregoing, (i) if the Company
      effectuates a 2:1 split of its Common Stock, thereafter, with respect to any
      conversion for which the Company issues shares after the record date of such
      split, the Lowest Fixed Conversion Price, if any, shall be deemed to be one-half
      of what it had been immediately prior to such split; (ii) if the Company
      effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
      to any conversion for which the Company issues shares after the record date
      of
      such reverse split, the Lowest Fixed Conversion Price shall be deemed to be
      ten
      times what it had been calculated to be immediately prior to such split; and
      (iii) if the Company declares a stock dividend of one share of Common Stock
      for
      every 10 shares outstanding, thereafter, with respect to any conversion for
      which the Company issues shares after the record date of such dividend, the
      Conversion Price (whether or not based on a Lowest Fixed Conversion Price)
      shall
      be deemed to be such amount multiplied by a fraction, of which the numerator
      is
      the number of shares (10 in the example) for which a dividend share will be
      issued and the denominator is such number of shares plus the dividend share(s)
      issuable or issued thereon (11 in the example).

    

    11. The
      Holder of the Debenture, by acceptance hereof, agrees that this Debenture is
      being acquired for investment and that such Holder will not offer, sell or
      otherwise dispose of this Debenture or the shares of Common Stock issuable
      upon
      conversion thereof except under circumstances which will not result in a
      violation of the Act or any applicable state Blue Sky or foreign laws or similar
      laws relating to the sale of securities.

    

    12. This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New York for contracts to be wholly performed in such state and without
      giving effect to the principles thereof regarding the conflict of laws. Each
      of
      the parties consents to the exclusive jurisdiction of the federal courts whose
      districts encompass any part of the County of New York or the state courts
      of
      the State of New York sitting in the County of New York in connection with
      any
      dispute arising under this Debenture and hereby waives, to the maximum extent
      permitted by law, any objection, including any objection based on forum
      non coveniens,
      to the
      bringing of any such proceeding in such jurisdictions. To the extent determined
      by such court, the Company shall reimburse the Holder for any reasonable legal
      fees and disbursements incurred by the Holder in enforcement of or protection
      of
      any of its rights under any of this Debenture. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    13. JURY
      TRIAL WAIVER. The
      Company and the Holder hereby waive a trial by jury in any action, proceeding
      or
      counterclaim brought by either of the Parties hereto against the other in
      respect of any matter arising out of or in connection with this Debenture.
      

    

    14. (i) Prior
      to
      the Maturity Date, the following shall constitute an "Event of
      Default":

    

    
      	 	 	
              a.

            	
              The
                Company shall default in the payment of principal or interest on
                this
                Debenture or any other Debenture in this Series or any other amount
                due
                hereunder or thereunder (including payment of a Redemption Amount,
                as
                defined below), and, (i) with respect to a payment of interest on
                a
                Scheduled Interest Payment Date or, unless the relevant Redemption
                Notice,
                as defined below, provides otherwise, the payment of a Redemption
                Amount
                on a Redemption Due Date, as defined below, such default shall continue
                for a period of five (5) Trading Days after the Holder gives the
                Company’s
                written notice thereof, and (ii) in all other instances, such default
                shall continue for a period of five (5) Trading Days;
                or

            

    

    

    
      	 	 	
              b.

            	
              Any
                of the representations or warranties made by the Company herein,
                in the
                Securities Purchase Agreement or any of the other Transaction Agreements
                or in any certificate or financial or other written statements heretofore
                or hereafter furnished by the Company in connection with the execution
                and
                delivery of this Debenture or the Securities Purchase Agreement shall
                be
                false or misleading in any material respect at the time made;
                or

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	
              c.

            	
              Subject
                to the terms of the Securities Purchase Agreement, the Company fails
                to
                authorize or to cause its Transfer Agent to issue shares of Common
                Stock
                upon exercise by the Holder of the conversion rights of the Holder
                in
                accordance with the terms of this Debenture (provided, however, that
                for
                purposes of this provision, such failure to cause the Transfer Agent
                to
                issue such shares shall not be deemed to occur until two (2) Trading
                Days
                after the Delivery Date), fails to transfer or to cause its Transfer
                Agent
                to transfer any certificate for shares of Common Stock issued to
                the
                Holder upon conversion of this Debenture and when required by this
                Debenture or any other Transaction Agreement, and such transfer is
                otherwise lawful, or fails to remove any restrictive legend on any
                certificate or fails to cause its Transfer Agent to remove such restricted
                legend, in each case where such removal is lawful, as and when required
                by
                this Debenture, or any other Transaction Agreement, and any such
                failure
                shall continue uncured for ten (10) Trading Days;
                or

            

    

    

    
      	 	 	
              d.

            	
              The
                Company shall fail to perform or observe, in any material respect,
                any
                other covenant, term, provision, condition, agreement or obligation
                of any
                Debenture in this series and such failure shall continue uncured
                for a
                period of thirty (30) days after the Company’s receipt written notice from
                the Holder of such failure; or

            

    

    

    
      	 	 	
              e.

            	
              The
                Company shall fail to perform or observe, in any material respect,
                any
                covenant, term, provision, condition, agreement or obligation of
                the
                Company under any of the Transaction Agreements and such failure,
                if
                capable of being cured, shall continue uncured for a period of thirty
                (30)
                days after the Holder gives the Company written notice thereof (but
                if not
                capable of being cured, such thirty day period shall be deemed expired
                immediately upon the giving of such notice);
                or

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	 	 	
              f.

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

            

    

    

    
      	 	 	
              g.

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

            

    

    

    
      	 	 	
              h.

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

            

    

    

    
      	 	 	
              i.

            	
              Any
                money judgment, writ or warrant of attachment, or similar process
                in
                excess of Seven Hundred Fifty Thousand ($750,000) Dollars in the
                aggregate
                shall be entered or filed against the Company or any of its properties
                or
                other assets and shall remain unpaid, unvacated, unbonded or unstayed
                for
                a period of sixty (60) days or in any event later than five (5) days
                prior
                to the date of any proposed sale thereunder;
                or

            

    

    

    
      	 	 	
              j.

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

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	 	 	
              k.

            	
              The
                Company shall have its Common Stock suspended from trading on, or
                delisted
                from, the Principal Trading Market for in excess of fifteen (15)
                Trading
                Days; or

            

    

    

    
      	 	 	
              l.

            	
              There
                shall be a Special Registration Default (as defined
                below).

            

    

    

    (ii) After
      the
      Maturity Date, the term “Event of Default” shall mean:

    

    
      	 	 	
              a.

            	
              The
                Company shall default in the payment of principal or interest on
                this
                Debenture or any other amount due hereunder, and, in any such instance,
                the same shall continue for a period of five (5) Trading Days; or
                

            

    

    

    
      	 	 	
              b.

            	
              Subject
                to the terms of the Securities Purchase Agreement, the Company fails
                to
                authorize or to cause its Transfer Agent to issue shares of Common
                Stock
                upon exercise by the Holder of the conversion rights of the Holder
                in
                accordance with the terms of this Debenture (provided, however, that
                for
                purposes of this provision, such failure to cause the Transfer Agent
                to
                issue such shares shall not be deemed to occur until two (2) Trading
                Days
                after the Delivery Date), fails to transfer or to cause its Transfer
                Agent
                to transfer any certificate for shares of Common Stock issued to
                the
                Holder upon conversion of this Debenture and when required by this
                Debenture or any other Transaction Agreement, and such transfer is
                otherwise lawful, or fails to remove any restrictive legend on any
                certificate or fails to cause its Transfer Agent to remove such restricted
                legend, in each case where such removal is lawful, as and when required
                by
                this Debenture, or any other Transaction Agreement, and any such
                failure
                shall continue uncured for tem (10) Trading
                Days.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii) If
      an
      Event of Default shall have occurred and is continuing, then, 

    

    (x)
      unless and until such Event of Default shall have been cured or waived in
      writing by the Holder (which waiver shall not be deemed to be a waiver of any
      subsequent default), at the option of the Holder and in the Holder’s sole
      discretion, but without further notice from the Holder, the unpaid amount of
      this Debenture, computed as of such date, will bear interest at the rate (the
      “Default Rate”) equal to eighteen percent (18%) per annum or the highest rate
      allowed by law, whichever is lower, from the date of the Event of Default to
      until and including the date actually paid; and any partial payments shall
      be
      applied first to all accrued interest and then to principal; and

    

    (y)
      at
      any time thereafter, and in each and every such case, unless such Event of
      Default shall have been cured or waived in writing by the Holder (which waiver
      shall not be deemed to be a waiver of any subsequent default), at the option
      of
      the Holder and in the Holder's sole discretion, the Holder may elect to redeem
      all or part of the Unconverted Debenture (as defined below) on the terms
      provided in Section 15 hereof.

    

    (iv) (A)
      The
      term “Special Registration Default” means either an Initial Special Registration
      Default or an Increased Special Registration Default (as those terms are defined
      below). 

    

    (B)
      If,
      as of the date which is two hundred seventy (270) days after the Issue Date
      (the
“Initial Default Effective Date”), the Registration Statement is not effective
      with respect to the resale by the Holder of a number of shares (the “Initial
      Full Registration Shares”) at least equal to the sum of 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (1)
      (x)
      the principal amount of the Unconverted Debenture as of the date of the Initial
      Special Registration Default Notice (as defined below), divided by (y) the
      Fixed
      Conversion Price then in effect, plus 

    

    (2)
      the
      Held Shares (as defined in the Registration Rights Agreement) of the Holder
      in
      excess of the number of shares actually registered for the Holder (the
“Unregistered Held Shares”),

    

    the
      Holder may, by written notice (an “Initial Special Registration Default Notice”)
      to the Company at any time before the effective date of a registration statement
      covering the sale of such number of shares (which might be adjusted based on
      events subsequent to such Initial Default Effective Date), declare a default
      under this Debenture (such default, an “Initial Special Registration
      Default”).

    

    (C)
      If,
      as a result of the application of the provisions of Section 4(g) of the
      Securities Purchase Agreement, there is an Increased Registered Shares Date,
      but, as of the date which is one hundred eighty hundred (180) days after such
      Increased Registered Shares Date (an “Increased Default Effective Date”), the
      Registration Statement is not effective with respect to the resale by the Holder
      of a number of shares (the “Increased Full Registration Shares”) at least equal
      to the sum of 

    

    (1)
      (x)
      the principal amount of the Unconverted Debenture as of the date of the
      Increased Special Registration Default Notice (as defined below), divided by
      (y)
      the Fixed Conversion Price then in effect, plus 

    

    (2)
      the
      Held Shares (as defined in the Registration Rights Agreement) of the Holder
      in
      excess of the number of shares actually registered for the Holder (the
“Unregistered Held Shares”),

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    the
      Holder may, by written notice (an “Increased Special Registration Default
      Notice”) to the Company at any time before the effective date of a registration
      statement covering the sale of such number of shares (which might be adjusted
      based on events subsequent to the Increased Default Effective Date), declare
      a
      default under this Debenture (such default, an “Increased Special Registration
      Default”). 

     

    (D)
      Anything in the foregoing provisions of this Section 14 to the contrary
      notwithstanding, an Initial Special Registration Default Notice or an Increased
      Special Registration Default Notice, as the case may be, may, in the discretion
      of the Holder, specify that if the Company’s failure to pay the relevant
      Redemption Amount within five (5) Trading Days after the Redemption Due Date
      will, without further notice, constitute an Event of Default with respect to
      the
      balance of this Debenture (or any smaller portion thereof designated by the
      Holder). 

    

    15.
       A. The
      Company acknowledges that if there is an Event of Default, the Holder may
      require the Company to immediately redeem all or any part of the outstanding
      portion of this Debenture for an amount equal to the Redemption Amount (as
      defined below). The Redemption Amount shall be paid in cash by the Company
      to
      the Holder.

    

    B. For
      purposes of this Debenture, the following terms shall have the meanings
      indicated below: 

    

    “Unconverted
      Debenture” means the principal amount of this Debenture which has not been
      converted as of the relevant date. 

    

    “Redemption
      Payment Date” means the date on which the Company actually pays the Redemption
      Amount.

    

    “Redemption
      Amount” means the amount equal to:

     

    
      	 	 	
              V 

            	 	x 
	
              M 

            	 	
               

            	 	 
	 	 	
              CP 

            	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    where:

    

    “V”
means
      the principal of an Unconverted Debenture plus any accrued but unpaid interest
      thereon;

    

    “CP”
      means the Payment Conversion Price in effect on the date (the “Redemption Notice
      Date”) of the Redemption Notice (as defined below); provided, however, if the
      Redemption Amount is not paid in full on or before the Redemption Due Date,
“CP”
means the lower of (x) the Payment Conversion Price in effect on the Redemption
      Notice Date or (y) the lowest Payment Conversion Price in effect during the
      period commencing on the Redemption Due Date and ending on the Redemption
      Payment Date; and 

    

    “M”
means
      the highest closing price per share of the Common Stock during the period
      beginning on the Redemption Notice Date and ending on the Redemption Payment
      Date.

    

    C. The
      Holder of an Unconverted Debenture may elect to redeem a portion of such
      Unconverted Debenture without electing to redeem the balance of the Unconverted
      Debenture. The Holder’s option to redeem all or part of the Unconverted
      Debenture shall be exercised by the Holder giving written notice of the exercise
      of this provision by the Holder (a “Redemption Notice”) at any time after a
      relevant Event of Default has occurred but before such Event of Default is
      cured.. The Redemption Notice shall specify (a) the date (the “Redemption Due
      Date”) on which the Redemption Amount shall be paid, which date shall be at
      least five (5) Trading Days after the date (a “Redemption Notice Date”) on which
      the Holder Redemption Notice is given, and (b) the wire instructions for the
      account to which the Redemption Amount is to be paid; provided, however, that
      the Company shall have the right to accelerate the date of such
      payment.

    

    D. If
      all of
      the Unconverted Debentures are being redeemed pursuant to this Section 5, then,
      upon payment in full of the Redemption Amount for all of the Unconverted
      Debentures in accordance with the provisions of this Section 5, the Holder
      shall
      deliver the Debenture to the Company marked “paid in full”.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    E. If
      the
      Redemption Amount is not timely paid by the Company, the Redemption Amount
      shall
      accrue interest at the Default Rate and the Holder may declare the Redemption
      Amount, together with such interest, due under this Debenture immediately due
      and payable, without presentment, demand, protest or notice of any kinds, all
      of
      which are hereby expressly waived, anything herein or in any note or other
      instruments contained to the contrary notwithstanding, and the Holder may
      immediately enforce any and all of the Holder's rights and remedies provided
      herein or any other rights or remedies afforded by law, including, but not
      necessarily limited to, the equitable remedy of specific performance and
      injunctive relief.

    

    F. Except
      as
      specified in this paragraph F, all provisions relating to an Event of Default
      shall apply to a Special Registration Default, including, but not limited to
      the
      provisions relating to the giving of a Redemption Notice. Notwithstanding the
      foregoing, if there is Special Registration Default, for determining the
      Redemption Amount with respect thereto, the principal amount of “V” in paragraph
      B above shall not exceed the amount which is equal to the sum of 

    

    (1)
      the
      principal of this Debenture which, if converted at the Fixed Conversion Price
      then in effect, would be convertible into the number of shares equal to the
      excess of (x) the Full Registration Shares over (y) the number of shares which
      are registered for resale by the Holder (reduced by the number of shares which
      have previously been sold by the Holder pursuant to the effective Registration
      Statement), plus

    

    (2)
      the
      Held Shares Value (as defined in the Registration Rights Agreement) of the
      Unregistered Held Shares of the Holder.

    

    16. Nothing
      contained in this Debenture shall be construed as conferring upon the Holder
      the
      right to vote or to receive dividends or to consent or receive notice as a
      shareholder in respect of any meeting of shareholders or any rights whatsoever
      as a shareholder of the Company, unless and to the extent converted in
      accordance with the terms hereof.

    17. Any
      notice required or permitted hereunder shall be given in manner provided in
      the
      Section headed "NOTICES" in the Securities Purchase Agreement, the terms of
      which are incorporated herein by reference.

    

    [Balance
      of page intentionally blank]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    18. In
      the
      event for any reason, any payment by or act of the Company or the Holder shall
      result in payment of interest which would exceed the limit authorized by or
      be
      in violation of the law of the jurisdiction applicable to this Debenture, then
      ipso
      facto
      the
      obligation of the Company to pay interest or perform such act or requirement
      shall be reduced to the limit authorized under such law, so that in no event
      shall the Company be obligated to pay any such interest, perform any such act
      or
      be bound by any requirement which would result in the payment of interest in
      excess of the limit so authorized. In the event any payment by or act of the
      Company shall result in the extraction of a rate of interest in excess of a
      sum
      which is lawfully collectible as interest, then such amount (to the extent
      of
      such excess not returned to the Company) shall, without further agreement or
      notice between or by the Company or the Holder, be deemed applied to the payment
      of principal, if any, hereunder immediately upon receipt of such excess funds
      by
      the Holder, with the same force and effect as though the Company had
      specifically designated such sums to be so applied to principal and the Holder
      had agreed to accept such sums as an interest-free prepayment of this Debenture.
      If any part of such excess remains after the principal has been paid in full,
      whether by the provisions of the preceding sentences of this Section or
      otherwise, such excess shall be deemed to be an interest-free loan from the
      Company to the Holder, which loan shall be payable immediately upon demand
      by
      the Company. The provisions of this Section shall control every other provision
      of this Debenture.

    

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

    

    Dated:
      _________________, 200__

     

    
      	 	 	 
	 	SKYSTAR
              BIO-PHARMACEUTICAL COMPANY
	 
 	 
 	 
 
	 	By:  	 
	 	 	 
	 	(Print
              Name)
	 	 
	 	(Title)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    SKYSTAR
      BIO-PHARMACEUTICAL COMPANY

    

    NOTICE
      OF
      CONVERSION

    OF

    8%
      CONVERTIBLE DEBENTURE SERIES 07-01 DUE __________, 2009

    CLASS
      A

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

    

    
      	TO:	
              SKYSTAR
                BIO-PHARMACEUTICAL COMPANY  :

            

    

    Rm.
      10601, Jiezuo Plaza, No. 4, 

    Fenghui
      Road South 

    Gaoxin
      District, Xian Province, P.R. China

    
      	
            	Attn:
              CEO	
              VIA
                TELECOPIER TO: (011-86-29) 8819-3185

            

      	 	 	 

      	 	with a copy
              to:  	Richardson & Patel LLP, Attn: Kevin K.
              Leung, Esq.

      	 	 	VIA TELECOPIER TO: (310)
              208-1154 

    

    

    FROM:
      _________________________________________________________
      (“Holder”)

    

    DATE:
      _______________________________________________ (the “Conversion
      Date”)

    

    
      	
              RE:

            	
              Conversion
                of $_________________ principal amount (the “Converted Debenture”) of the
                8% Convertible Debenture Series 07-01 Due __________, 2009, Class
                A No.
                07-01A-__ (the “Debenture”) of SKYSTAR BIO-PHARMACEUTICAL COMPANY (the
                “Company”) into ______________________ shares (the “Conversion Shares”) of
                Common Stock (defined below

            

    

    

    The
      captioned Holder hereby gives notice to the Company, pursuant to the Debenture
      of SKYSTAR BIO-PHARMACEUTICAL COMPANY that the Holder elects to convert the
      Converted Debenture into fully paid and non-assessable shares of Common Stock,
      $0.001 par value (the “Common Stock”), of the Company as of the Conversion Date
      specified above. Said conversion shall be based on the following Conversion
      Price (check
      and fill in one):

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              9

            	
              $________________,
                representing the Fixed Conversion Price (as defined in the
                Debenture)

            

    

    

    
      	 	o 	
              adjusted
                in accordance with the provisions of the
                Debenture 

            

      	 	 	 

      	
              9

            	 	
              $________________,
                representing the Lowest Fixed Conversion
                Price

            

      	 	 	 

      	 	o 	adjusted in accordance with the provisions of the
              Debenture 

    

    

    
      	
              9

            	 	
              $________________,
                representing the Prepayment Conversion
                Price

            

    

     

    Based
      on
      this Conversion Price, the number of Conversion Shares indicated above should
      be
      issued in the following name(s):

    

    Name
      and
      Record Address    Conversion
      Shares

    _______________________________  _______________

    _______________________________  _______________

    _______________________________  _______________

    

    It
      is the
      intention of the Holder to comply with the provisions of Section 4(C) of the
      Debenture regarding certain limits on the Holder's right to convert thereunder.
      Based on the analysis on the attached Worksheet Schedule, the Holder believe
      this conversion complies with the provisions of said Section 4(C). Nonetheless,
      to the extent that, pursuant to the conversion effected hereby, the Holder
      would
      have more shares than permitted under said Section, this notice should be
      amended and revised, ab initio, to refer to the conversion which would result
      in
      the issuance of shares consistent with such provision. Any conversion above
      such
      amount is hereby deemed void and revoked.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    As
      contemplated by the Debenture, this Notice of Conversion is being sent by
      facsimile to the telecopier number and officer indicated above. 

    

    If
      this
      Notice of Conversion represents the full conversion of the outstanding balance
      of the Converted Debenture, the Holder either (1) has previously surrendered
      the
      Converted Debenture to the Company or (2) will surrender (or cause to be
      surrendered) the Converted Debenture to the Company at the address indicated
      above by express courier within five (5) Trading Days after delivery or
      facsimile transmission of this Notice of Conversion. 

    

    The
      certificates representing the Conversion Shares should be transmitted by the
      Company to the Holder

    

    o via
      express
      courier, or 

    

    o by
      electronic
      transfer

    

    within
      the time contemplated by the Debenture after receipt of this Notice of
      Conversion (by facsimile transmission or otherwise) to:

    

    _____________________________________

    _____________________________________

    _____________________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    As
      contemplated by the Debenture, the Company should also pay all accrued but
      unpaid interest on the Converted Debenture to the Holder. 

    

    --If
      the
      Company elects to pay such interest in Common Stock, as contemplated by and
      subject to the provisions of the Debenture,6 
      such
      shares should be issued in the name of the Holder and delivered in the same
      manner as, and together with, the Conversion Shares.

    

    --If
      the
      Company elects or is required to pay the dividends in cash, such payment should
      be made by wire transfer as follows:7 

    

    ___________________________________

    

    ___________________________________

    

    ___________________________________
      

     

     

    ____________________

    
      
        6Number
          of
          shares based on applicable Payment Conversion Price (as defined in the
          Debenture).

        7Information
          should include the following:

      

      
         

        All
          Wires: 

        (1)
          Bank
          Name

        (2)
          Bank
          Address (including street, city, state) 

        (3)
          ABA
          or Wire Routing No. 

        (4)
          Account Name

        (5)
          Account Number

         

        If
          Wire
          is going to International (Non-US) Bank, all of the above plus:

        (6)
          SWIFT
          Number

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	(Print
              name of Holder)
	 
 	 
 	 
 
	 	By:  	 
	 	(Signature
              of Authorized Person)
	 	 
	 	(Printed Name and Title)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NOTICE
      OF
      CONVERSION

    WORKSHEET
      SCHEDULE

    

     

    1.
      Current Common Stock holdings of Holder and Affiliates __________

     

    2.
      Shares
      to be issued on current conversion8
      __________

     

    3.
      Other
      shares to be issued on other current conversion(s) and other
      current exercise(s) __________

     

    4.
      Other
      shares eligible to be acquired within next 60 days without
      restriction __________

     

    5.
      Total
      [sum of Lines 1 through 4] __________

     

    6.
      Outstanding 
      shares
      of Common Stock9
      __________

     

    7.
      Adjustments to Outstanding

     

    a.
      Shares
      known to Holder as previously issued to
      Holder
      or others but not included in Line 6 __________

     

    b.
      Shares
      to be issued per Line(s) 2 and 3 __________

     

    c.
      Total
      Adjustments [Lines 7a and 7b] __________

     

    8.
      Total
      Adjusted Outstanding [Lines 6 plus 7c] __________

     

    9.
      Holder’s Percentage [Line 5 divided by Line 8] __________% 

     

    [Note:
      Line 9 not to be above 4.99%]

     

    ________________

      
        8
          Includes
          conversion of principal and assumes interest will be paid in Common Stock
          at the
          Conversion Price.

        9
          Based on
          latest SEC filing by Company.FORM
      OF DEBENTURE

    

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
      FOR
      SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      OR
      AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.

     

    
      	Class B
              No. 07-01B-
              1 	
              US
                $_____________ 

            

    

     

    SKYSTAR
      BIO-PHARMACEUTICAL COMPANY

    

    8%
      CONVERTIBLE DEBENTURE SERIES 07-01 

    DUE
      _______, 20092 

    

    THIS
      DEBENTURE is one of a duly authorized issue of up to $__________3 
      in Class
      A and Class B Debentures of SKYSTAR
      BIO-PHARMACEUTICAL COMPANY,
      a
      corporation organized and existing under the laws of the State of Nevada (the
      "Company") designated as its 8% Convertible Debentures Series
      07-01.

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to ___________________, the registered
      holder hereof (the "Holder"), the principal sum of ___________________ and
      00/100 Dollars (US $ ___________________) on ______, 20094 
      (the
“Maturity Date”) and to pay interest on the principal sum outstanding from time
      to time in arrears at the rate of 8% per annum, accruing from ______________,
      20075 ,
      the
      date of initial issuance of this Debenture (the “Issue Date”), on the date
      (each, an “Interest Payment Date”) which is the earliest of (i) the next
      Prepayment Date (as defined below), (ii) the next Conversion Date (as defined
      below), or (iii) the Maturity Date, as the case may be. Interest shall accrue
      monthly (pro-rated on a daily basis for any period longer or shorter than a
      month) from the later of the Issue Date or the previous Interest Payment Date
      and shall be payable in cash or, at the Company’s option but subject to the
      other provisions of this Debenture, in Common Stock. If not paid in full on
      an
      Interest Payment Date, interest shall be fully cumulative and shall accrue
      on a
      daily basis, based on a 365-day year, monthly or until paid, whichever is
      earlier. Additional provisions regarding the payment of interest are provided
      in
      Section 4(D) below (the terms of which shall govern as if this sentence were
      not
      included in this Debenture). 

    
      
         

        ___________________________

        1Insert
          unique Debenture number for each issuance.

      

      
        2Insert
          date which is second anniversary of Closing Date.

      

      
        3Insert
          the Aggregate Purchase Price.

      

      
        4See
          fn
          2.

      

      
        5Insert
          the Closing Date. 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    This
      Debenture is being issued pursuant to the terms of the Securities Purchase
      Agreement, dated February 26, 2007 (the “Securities Purchase Agreement”), to
      which the Company and the Holder (or the Holder’s predecessor in interest) are
      parties. Capitalized terms not otherwise defined herein shall have the meanings
      ascribed to them in the Securities Purchase Agreement.

    

    This
      Debenture is subject to the following additional provisions:

    

    1. The
      Debentures will initially be issued in denominations determined by the Company,
      but are exchangeable for an equal aggregate principal amount of Debentures
      of
      different denominations, as requested by the Holder surrendering the same.
      No
      service charge will be made for such registration or transfer or
      exchange.

    

    2. The
      Company shall be entitled to withhold from all payments of principal of, and
      interest on, this Debenture any amounts required to be withheld under the
      applicable provisions of the United States income tax laws or other applicable
      laws at the time of such payments, and Holder shall execute and deliver all
      required documentation in connection therewith.

    

    3. This
      Debenture has been issued subject to investment representations of the original
      purchaser hereof and may be transferred or exchanged only in compliance with
      the
      Securities Act of 1933, as amended (the "Act"), and other applicable state
      and
      foreign securities laws and the terms of the Securities Purchase Agreement.
      In
      the event of any proposed transfer of this Debenture, the Company may require,
      prior to issuance of a new Debenture in the name of such other person, that
      it
      receive reasonable transfer documentation that is sufficient to evidence that
      such proposed transfer complies with the Act and other applicable state and
      foreign securities laws and the terms of the Securities Purchase Agreement.
      Prior to due presentment for transfer of this Debenture, the Company and any
      agent of the Company may treat the person in whose name this Debenture is duly
      registered on the Company's Debenture Register as the owner hereof for the
      purpose of receiving payment as herein provided and for all other purposes,
      whether or not this Debenture be overdue, and neither the Company nor any such
      agent shall be affected by notice to the contrary.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    4. A. 
      (i) At
      any time on or after the Commencement Date (as defined below) and prior to
      the
      time this Debenture is paid in full in accordance with its terms (including,
      without limitation, after the Prepayment Date or the Mandatory Conversion Date,
      or after the occurrence of an Event of Default, as those terms are defined
      below, or, if the Debenture is not fully paid or converted after the Maturity
      Date), the Holder of this Debenture is entitled, at its option, subject to
      the
      following provisions of this Section 4, to convert this Debenture at any time
      into shares of Common Stock, $0.001 par value ("Common Stock"), of the Company
      at the Conversion Price (as defined below). Any such conversion is referred
      to
      as a “Voluntary Conversion.” The minimum principal amount of each Voluntary
      Conversion shall be $25,000 or, if the outstanding principal amount of this
      Debenture is less than $25,000, the outstanding principal balance of this
      Debenture.

    

    (ii)
      On
      the Maturity Date the Company shall pay the principal and accrued interest
      (through the actual date of payment) of any portion of this Debenture which
      is
      then outstanding.

    

    (iii)
      For
      purposes of this Debenture, the following terms shall have the meanings
      indicated below: 

    

    “Commencement
      Date” means the Issue Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    “Conversion
      Price” means (x) with respect to a Voluntary Conversion or a Mandatory
      Conversion (as defined herein), the lowest of (i) the Fixed Conversion Price,
      (ii) the Lowest Fixed Conversion Price (which amount is subject to adjustment
      as
      provided herein), or (iii) during the pendency of an Event of Default (as
      defined below), the Prepayment Conversion Price, and (y) with respect to a
      conversion in connection with a Required Prepayment (as defined herein), the
      Payment Conversion Price.

    

    “Fixed
      Conversion Price” means the amount equal to $1.00 (such amount is subject to
      adjustment as provided herein).

    

    “Payment
      Conversion Price” means, as of the relevant date, the lowest of (x) the
      Prepayment Conversion Price, (y) the Fixed Conversion Price or (z) the Lowest
      Fixed Conversion Price.

    

    “Prepayment
      Conversion Price” means (i) the VWAP for the five (5) Regular Trading Days
      ending on the Trading Day immediately before the relevant Prepayment Date or
      the
      relevant Conversion Date, as the case may be, multiplied by (ii) seventy percent
      (70%).

    

    “VWAP”
      means the volume weighted average price of the Common Stock on the Principal
      Trading Market for the relevant Regular Trading Day(s), as reported by the
      Reporting Service.

    

    “Reporting
      Service” means Bloomberg LP or if that service is not then reporting the
      relevant information regarding the Common Stock, a comparable reporting service
      of national reputation selected by a Majority in Interest of the Holders and
      reasonably acceptable to the Company.

    “Lowest
      Fixed Conversion Price” means the lowest New Transaction Price from any New
      Transaction (as those terms are defined in the Securities Purchase Agreement)
      (which amount, if any, is subject to subsequent adjustment as provided
      herein).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    “Acceptable
      Trading Market” means any of the following: (w) the Over the Counter Bulletin
      Board Market, (x) the NASDAQ Capital or National Market, (y) the American Stock
      Exchange or (z) the New York Stock Exchange.

    

    “Prepayment
      Date” means either a Voluntary Prepayment Date or a Required Prepayment Date (as
      those terms are defined below).

    

    “Conversion
      Shares” has the meaning ascribed to in Section 4(I) hereof.

     

    B. A
      Voluntary Conversion shall be effectuated by the Holder by faxing a notice
      of
      conversion (“Notice of Conversion”) to the Company as provided in this
      paragraph. The Notice of Conversion shall be executed by the Holder of this
      Debenture and shall evidence such Holder's intention to convert this Debenture
      or a specified portion hereof in the form annexed hereto as Exhibit A. Delivery
      of the Notice of Conversion shall be accepted by the Company by hand, mail
      or
      courier delivery at the address specified in said Exhibit A or at the facsimile
      number specified in said Exhibit A (each of such address or facsimile number
      may
      be changed by notice given to the Holder in the manner provided in the
      Securities Purchase Agreement). 

     

    C. [Intentionally
      omitted]

    

    D. (i)
      Subject to the other terms of this Section 4(D), interest on the principal
      amount of this Debenture converted pursuant to a Notice of Conversion shall
      be
      due and payable, at the option of the Company, in cash or, subject to the
      conditions of the next sentence, in shares of Common Stock on the Interest
      Payment Date. Anything herein to the contrary notwithstanding, the Company
      may
      elect to pay interest in shares of Common Stock if, but only if, the shares
      of
      Common Stock issuable to the Holder as such payment are covered by an effective
      Registration Statement.

    

    (ii)
      If
      the interest payable in connection with a Voluntary Conversion is to be paid
      in
      cash, the Company shall make such payment within three (3) Trading Days after
      the Interest Payment Date. If the interest is not paid by such third Trading
      Day, the interest must be paid in Common Stock in accordance with the provisions
      of this Section 4(D), unless the Holder consents otherwise in each specific
      instance.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (iii)
      Additional provisions regarding the payment of interest on the principal amount
      of this Debenture are set forth in the following provisions of this Section
      4.

    

    (iv)
      If
      interest is to be paid in Common Stock (whether at the election of the Company
      or as required hereunder), the number of shares of Common Stock to be received
      shall be determined by dividing the dollar amount of the interest by the Payment
      Conversion Price in effect on the relevant Interest Payment Date.

     

    E. Reference
      is made to the provisions of Section 4(g) of the Securities Purchase Agreement,
      the terms of which are incorporated herein by reference. The Conversion Price
      and other provisions of this Debenture shall be adjusted as provided in the
      applicable provisions of said Section 4(g) of the Securities Purchase
      Agreement.

    

    F. (i)
      Anything in the other provisions of this Debenture or any of the other
      Transaction Agreements to the contrary notwithstanding, the Company shall have
      the right, in its discretion, to prepay the outstanding principal of this
      Debenture, together with all accrued interest thereon, in whole or in part,
      on
      the terms and conditions provided in this Section 4(F). If the Company elects
      to
      make such a prepayment, the Company shall give the Holder a written notice
      (the
“Voluntary Prepayment Notice”) of its election to prepay all or a portion of
      then outstanding Debenture. The prepayment amount shall be equal to the sum
      of
      (x) the Applicable Prepayment Percentage (as defined below) of the principal
      of
      this Debenture being prepaid, plus (y) the accrued interest on such principal
      through the Voluntary Prepayment Date. Additional terms regarding this
      prepayment right are provided below. The term “Applicable Prepayment Percentage”
means (1) through and including the first annual anniversary of the Issue Date,
      one hundred fifty percent (150%) and (2) thereafter, one hundred twenty percent
      (120%). 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (ii)
      The
      Company may give a Voluntary Prepayment Notice and make the prepayment only
      if,
      (x) on the date on which the Voluntary Prepayment Notice is given and (y) on
      every Trading Day thereafter through and including the Voluntary Prepayment
      Date,

    

    (x)
      there
      is an effective Registration Statement covering the resale of the shares
      issuable on conversion of this Debenture, and

    

    (y)
      there
      is no Event of Default hereunder or any event which, with the giving of notice
      or the passage of time (that is, without regard to any grace or cure periods),
      could be declared an Event of Default hereunder, and 

    

    (z)
      the
      Common Stock of the Company, including any Conversion Shares to be issued on
      conversion of the Debenture during the Prepayment Conversion Period, are
      eligible for trading on an Acceptable Trading Market.

    

    (iii)
      The
      Voluntary Prepayment Notice shall specify (x) the principal amount of the
      Debenture being prepaid by the Company (the “Voluntary Principal Prepayment
      Amount”), (y) the date (the “Voluntary Prepayment Date”), which shall be not
      less than twenty (20) and not more than forty (40) Trading Days after the
      Voluntary Prepayment Notice is received by the Holder, on which such prepayment
      will be made, and (z) identify the bank (the “Prepayment Bank”) where the
      Voluntary Prepayment Funds (as defined below) have been deposited. The Voluntary
      Prepayment Notice shall be accompanied by the Prepayment Bank’s confirmation to
      the Holder that funds (the “Voluntary Prepayment Funds”) equal to the Voluntary
      Prepayment Amount have been deposited with the Prepayment Bank and instructions
      for the method by which the Holder can provide instructions to the Prepayment
      Bank to make payment of the Voluntary Prepayment Funds to the Holder (such
      payment to made by check or wire, as specified by the Holder) on the Voluntary
      Prepayment Date.

    

    (iv)
      Even
      after the issuance of a Voluntary Prepayment Notice, the Holder may continue
      to
      convert this Debenture as provided in the other provisions of this Debenture
      until this Debenture is paid in full. If the Holder converts any portion of
      this
      Debenture after the date of the Voluntary Prepayment Notice and prior to the
      payment of the Voluntary Prepayment Funds to the Holder (the “Prepayment
      Conversion Period”), so that the then outstanding principal of this Debenture is
      less than the Voluntary Prepayment Principal Amount, the Company shall notify
      the Prepayment Bank of the then outstanding principal of this Debenture
      (accompanied by a copy of the relevant Notice of Conversion issued by the
      Holder); provided, however, if the Voluntary Prepayment Principal Amount is
      less
      than the principal of the then Unconverted Debenture, any such conversions
      made
      during the Prepayment Conversion Period shall be deemed made in the following
      order of priority: (x) first, out of principal of the Unconverted Debenture
      in
      excess of the Voluntary Prepayment Principal Amount, and (y) then, out of the
      Voluntary Prepayment Principal Amount. To the extent that any conversions made
      during the Prepayment Conversion Period are deemed made out of the Voluntary
      Prepayment Principal Amount, the Voluntary Prepayment Funds will then be
      adjusted to and be deemed to be equal the sum of (x) the Applicable Prepayment
      Percentage of the adjusted principal of this Debenture being prepaid, plus
      (y)
      the accrued interest on such principal through the Voluntary Prepayment
      Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (v)
      If
      the Voluntary Prepayment Funds are not timely paid or made available to the
      Holder, the Holder will have the option, exercisable at any time prior to the
      actual payment of the Voluntary Prepayment Funds (together with any additional
      interest accruing on the Prepayment Principal Amount after the Prepayment Date)
      to effect either or both of the following actions: (x) cancellation, ab initio,
      of the prepayment contemplated by the Voluntary Prepayment Notice and (y)
      cancellation of the Company’s prepayment right under this Section
      4(F).

    

    G. (i)
      Anything in the other provisions of this Debenture or any of the other
      Transaction Agreements to the contrary notwithstanding, the Company shall have
      the right, on the terms and conditions provided in this Section 4(G), to require
      the Holder to convert all or a specified portion of the principal of this
      Debenture, together with all accrued interest thereon, on the Mandatory
      Conversion Date (as defined below). On the Mandatory Conversion Date, without
      further action by the Holder, the outstanding principal and accrued but unpaid
      interest on this Debenture shall be deemed converted into Common Stock (x)
      with
      respect to such principal, at the Conversion Price in effect on such Mandatory
      Conversion Date, and (y) with respect to the interest at the applicable rate
      contemplated by the provisions of Section 4(D)(iv) hereof on such Mandatory
      Conversion Date. Any conversion contemplated by this Section 4(G) shall be
      subject to the following terms and conditions of this Section 4(G), to the
      extent relevant.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (ii)
      Subject to the provisions of subparagraph (iii) below, if, for each of twenty
      (20) consecutive Trading Days (the twentieth of such consecutive Trading Days,
      the “Target Trading Day”),

    

    (A)
      the
      Sale Price (as defined below) for the Common Stock is more than the Target
      Price
      (as defined below), and

    

    (B)
      the
      Daily Volume (as defined below) is more than the Target Volume (as defined
      below),

    

    the
      Company will have the right, in its discretion, to give the Holder a written
      notice (a “Mandatory Conversion Notice”) within five (5) Trading Days after the
      Target Trading Day. The Mandatory Conversion Notice shall state that the date
      specified in such notice (the “Mandatory Conversion Date”), which date shall be
      no earlier than twenty (20) Trading Days and no later than sixty (60) Trading
      Days after the Target Trading Day, shall be deemed a Mandatory Conversion
      Date.

    

    (iii)
      Anything herein to the contrary notwithstanding, the Company may give a
      Mandatory Conversion Notice and make the conversions contemplated thereby only
      if, (x) on the date on which the Mandatory Conversion Notice is given and (y)
      on
      every Trading Day thereafter through and including the Mandatory Conversion
      Date, 

    

    (x)
      there
      is an effective Registration Statement covering the resale of the shares
      issuable on conversion of this Debenture to the extent contemplated by the
      Mandatory Conversion Notice, and

    

    (y)
      there
      is no Event of Default hereunder or any event which, with the giving of notice
      or the passage of time (that is, without regard to any grace or cure periods),
      could be declared an Event of Default hereunder, and 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (z)
      the
      Common Stock of the Company, including the Conversion Shares to be issued on
      the
      Mandatory Conversion Date, are eligible for trading on an Acceptable Trading
      Market.

    

    (iv)
      The
      term “Sale Price” means the 4:00 P.M. closing sale price of the Common Stock on
      the Principal Trading Market on the relevant Trading Day(s), as reported by
      the
      Reporting Service for the relevant date. The term “Target Price” means $2.75
      (which amount is subject to adjustment to the same extent that the Fixed
      Conversion Price is adjusted other than pursuant to Section 4(g) of the
      Securities Purchase Agreement). The term “Daily Volume” means the trading volume
      for each relevant Trading Day, as reported by the Reporting Service. The term
      “Target Volume” means 45,000 shares of Common Stock (which amount is subject to
      adjustment to the same extent that the Fixed Conversion Price is adjusted other
      than pursuant to Section 4(g) of the Securities Purchase Agreement and other
      than as a result of reverse stock split).

    

    (v)
      If
      the Company properly and timely gives a Mandatory Conversion Notice and all
      of
      the conditions referred in subparagraph (iii) above are satisfied, the
      conversion contemplated by the Mandatory Conversion Notice will be effected,
      subject to the provisions of subparagraph (vi) below, on the Mandatory
      Conversion Date. If any of such conditions is not true, the Mandatory Conversion
      Notice shall be deemed canceled ab initio.

     

    (vi)
      [Intentionally omitted]

    

    (vii)
      Prior to a Mandatory Conversion Date, including after receiving a Mandatory
      Conversion Notice, the Holder shall continue to have the right to convert any
      outstanding portion of this Debenture in accordance with its terms until it
      is
      fully converted. Any such conversion shall be applied against the mandatory
      conversion contemplated by the Mandatory Conversion Notice.

    

    (viii)
      If, as of the Mandatory Conversion Date specified in the relevant Mandatory
      Conversion Notice, the Company timely pays in full any accrued interest payable
      with respect to the portion of the Debenture contemplated by the Mandatory
      Conversion Notice and issues all shares then converted in accordance with,
      and
      subject to the other provisions of this Section 4(G), then interest shall cease
      to accrue on any remaining Unconverted Debenture to the extent included in
      the
      Mandatory Conversion Notice. If, subject to such other provisions, such payment
      is not made in full on or before the Mandatory Conversion Date, interest shall
      continue to accrue on the unpaid portion until the earliest date after the
      initial Mandatory Conversion Date on which all accrued interest through the
      date
      of payment has in fact been paid, but cease to accrue thereafter. If the
      Mandatory Conversion Notice does not contemplate that the entire outstanding
      Debenture is to be converted on the Mandatory Conversion Date, then Interest
      shall continue to accrue and be payable, without regard to the provisions of
      this Section 4(G) with respect to any portion of the Debenture not so included
      in the Mandatory Conversion Notice. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    H. (i)
      Anything herein to the contrary notwithstanding, the Company shall make payments
      in reduction of the obligations represented by this Debenture in accordance
      with
      the terms of this Section 4(H).

    

    (ii)
      Commencing on the first Trading Day of the calendar month following the date
      on
      which the third monthly anniversary of the Issue Date occurs, and on the first
      Trading Day of each subsequent calendar month (each such date, a “Required
      Prepayment Date”), the Company shall pay to the Holder an amount (the “Required
      Principal Payment”) equal to four and 77/100 percent (4.77%) of the original
      principal of this Debenture but not more than the then outstanding principal
      of
      this Debenture, together with accrued but unpaid interest thereon (the “Required
      Interest Payment”). With respect to each Required Prepayment Date, the relevant
      Required Principal Payment and the relevant Required Interest Payment are
      referred to collectively as the “Required Payment.”

    

    (iii)
      For
      each Required Prepayment Date which is prior to the Effective Date, the Required
      Payment shall be made in cash. If less than the full amount is paid, the amount
      actually paid shall be applied in the following order of priority (x) first,
      to
      the Required Interest Payment; and (y) then to principal of the Debenture.
      The
      failure to pay such full amount, however, may result in an Event of
      Default.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (iv)
      For
      each Required Prepayment Date which is on or after the Effective Date, the
      Company may, subject to the following provisions of this Section 4(H), elect
      to
      make the Required Payment in cash or in shares of Common Stock. Unless the
      Company notifies the Holder at least thirty (30) calendar days in advance of
      the
      relevant Required Prepayment Date that it is electing to pay the Required
      Payment in shares of Common Stock (subject to the following provisions of this
      Section 4(H), the Company will be required to make such payment in cash on
      the
      Required Payment Date. Notwithstanding the foregoing, the Company may only
      pay
      the Required Payment in shares if (x) the Registration Statement covering the
      Conversion Shares to be issued in such payment is effective on the Payment
      Date
      and on the date the Conversion Shares are delivered to the Holder, and (y)
      the
      VWAP for the five (5) Trading Days used in the computation for the relevant
      Payment Conversion Price (the “Required Prepayment VWAP”) is not less than $0.50
      (the “Floor VWAP Price”; which Floor VWAP Price may be adjusted for any reverse
      stock split).

    

    (v)
      If,
      with respect to any Required Prepayment Date, the Company elects or is required
      to pay the Required Payment in cash, the amount of such payment shall be equal
      to the sum of (i) the Applicable Required Percentage (as defined below) of
      the
      Required Principal Payment) and (ii) one hundred percent (100%) of the Required
      Interest Payment and of any other amounts due hereunder. If less than the full
      amount is paid, the amount actually paid shall be applied in the following
      order
      of priority (w) first, to the Required Interest Payment; (x) then, to any other
      amounts other than principal due hereunder; (y) then, to a prepayment fee equal
      to (1) until the first annual anniversary of the Issue Date, to the extent
      of
      fifteen percent (15%) of the amount of the Required Principal Payment, or (2)
      on
      and after the first annual anniversary of the Issue Date, to the extent of
      twenty-five percent (25%) of the amount of the Required Principal Payment;
      and
      (z) then to principal of the Debenture. The failure to pay such full amount,
      however, may result in an Event of Default. If the entire amount is paid, the
      outstanding principal of the Debenture shall be reduced by the amount of the
      Required Principal Payment. The term “Applicable Required Percentage” means (1)
      until the first annual anniversary of the Issue Date, one hundred fifteen
      percent (115%), and (2) on and after the first annual anniversary of the Issue
      Date, one hundred twenty-five percent (125%).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (vi)
      If
      the Required Payment is made in stock, as provided herein, the Company shall
      issue shares to the Holder equal to the Required Payment divided by the Payment
      Conversion Price. 

    

    (vii)
      [Intentionally omitted]

    

    (viii)
      The provisions of this Section 4(H) notwithstanding, the Holder shall continue
      to have the right to convert any outstanding portion of this Debenture in
      accordance with its terms until it is fully converted or paid to the same extent
      as if this Section 4(H) were not included in this Debenture. 

    

    I. (i)
      The
      following provisions apply to the issuances of Common Stock in payment of the
      amounts due under this Debenture, whether as principal or interest, as provided
      in the preceding provisions of this Section 4.

    

    (ii)
      No
      fractional shares of Common Stock or scrip representing fractions of shares
      will
      be issued on conversion, but the number of shares issuable shall be rounded
      to
      the nearest whole share.

    

    (iii)
      Each of the following dates shall constitute a “Conversion Date”: 

    

    (x)
      For a
      Voluntary Conversion, the date on which the Holder faxes or otherwise delivers
      a
      Notice of Conversion to the Company so that it is received by the Company on
      or
      before such specified date shall be a “Conversion Date” for all purposes of this
      Debenture and the other Transaction Agreements. 

    

    (y)
      For a
      Mandatory Conversion, the Mandatory Conversion Date shall be a “Conversion Date”
with respect to the relevant shares for all purposes of this Debenture and
      the
      other Transaction Agreements, without the need for the Holder to submit a Notice
      of Conversion.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (z)
      For a
      Required Payment which is made in stock, the Required Payment Date shall be
      deemed to be a “Conversion Date” with respect to the relevant shares for all
      purposes of this Debenture and the other Transaction Agreements, without the
      need for the Holder to submit a Notice of Conversion.

    

    (iv)
      All
      shares issuable with respect to a Conversion Date shall be deemed “Conversion
      Shares” for all purposes of this Debenture and the other Transaction Agreements.
      Certificates representing the relevant Conversion Shares (“Conversion
      Certificates”) will be delivered to the Holder at (x) with respect to a
      Voluntary Conversion, at the address specified in the relevant Notice of
      Conversion, and (y) with respect to any conversion contemplated hereby to the
      address separately identified by the Holder (and if none, the Holder’s the
      Holder’s address for notices as contemplated by the Securities Purchase
      Agreement, which address the Holder may change from time to time in the manner
      provided therein), via express courier, by electronic transfer or otherwise,
      within three (3) Trading Days (such third Trading Day, the “Delivery Date”)
      after the relevant Conversion Date. The Holder shall be deemed to be the holder
      of the shares issuable to it in accordance with the relevant provisions of
      this
      Section 4 on the Conversion Date.

    

    J. Any
      payments under this Debenture shall be applied in the following order of
      priority: (i) first to accrued interest; (ii) then, to any amounts (other than
      principal) due hereunder and (iii) then, to principal in the inverse order
      of
      maturity. 

    

    5.
       Subject
      to the terms of the Securities Purchase Agreement, no provision of this
      Debenture shall alter or impair the obligation of the Company, which is absolute
      and unconditional, to pay the principal of, and interest on, this Debenture
      at
      the time, place, and rate, and in the coin or currency or where contemplated
      herein in shares of its Common Stock, as applicable, as herein prescribed.
      This
      Debenture and all other Debentures now or hereafter issued of similar terms
      are
      direct obligations of the Company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    6. No
      recourse shall be had for the payment of the principal of, or the interest
      on,
      this Debenture, or for any claim based hereon, or otherwise in respect hereof,
      against any incorporator, shareholder, officer or director, as such, past,
      present or future, of the Company or any successor corporation, whether by
      virtue of any constitution, statute or rule of law, or by the enforcement of
      any
      assessment or penalty or otherwise, all such liability being, by the acceptance
      hereof and as part of the consideration for the issue hereof, expressly waived
      and released.

    

    7. All
      payments contemplated hereby to be made “in cash” shall be made in immediately
      available good funds of United States of America currency by wire transfer
      to an
      account designated in writing by the Holder to the Company (which account may
      be
      changed by notice similarly given). All payments of cash and each delivery
      of
      shares of Common Stock issuable to the Holder as contemplated hereby shall
      be
      made to the Holder at the address last appearing on the Debenture Register
      of
      the Company as designated in writing by the Holder from time to time; except
      that the Holder can designate, by notice to the Company, a different delivery
      address for any one or more specific payments or deliveries.

    

    8. If,
      for
      as long as this Debenture remains outstanding, the Company enters into a merger
      (other than where the Company is the surviving entity) or consolidation with
      another corporation or other entity or a sale or transfer of all or
      substantially all of the assets of the Company to another person (collectively,
      a "Sale"), the Company will require, in the agreements reflecting such
      transaction, that the surviving entity expressly assume the obligations of
      the
      Company hereunder. Notwithstanding the foregoing, if the Company enters into
      a
      Sale and the holders of the Common Stock are entitled to receive stock,
      securities or property in respect of or in exchange for Common Stock, then
      as a
      condition of such Sale, the Company and any such successor, purchaser or
      transferee will agree that the Debenture may thereafter be converted on the
      terms and subject to the conditions set forth above into the kind and amount
      of
      stock, securities or property receivable upon such merger, consolidation, sale
      or transfer by a holder of the number of shares of Common Stock into which
      this
      Debenture might have been converted immediately before such merger,
      consolidation, sale or transfer, subject to adjustments which shall be as nearly
      equivalent as may be practicable. In the event of any such proposed Sale, (i)
      the Holder hereof shall have the right to convert by delivering a Notice of
      Conversion to the Company within fifteen (15) days of receipt of notice of
      such
      Sale from the Company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    9. If,
      at
      any time while any portion of this Debenture remains outstanding, the Company
      spins off or otherwise divests itself of a part of its business or operations
      or
      disposes of all or of a part of its assets in a transaction (the “Spin Off”) in
      which the Company, in addition to or in lieu of any other compensation received
      and retained by the Company for such business, operations or assets, causes
      securities of another entity (the “Spin Off Securities”) to be issued to
      security holders of the Company, the Company shall cause (i) to be reserved
      Spin
      Off Securities equal to the number thereof which would have been issued to
      the
      Holder had all of the Holder’s Debentures outstanding on the record date (the
“Record Date”) for determining the amount and number of Spin Off Securities to
      be issued to security holders of the Company (the “Outstanding Debentures”) been
      converted as of the close of business on the Trading Day immediately before
      the
      Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the
      Holder on the conversion of all or any of the Outstanding Debentures, such
      amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
      multiplied by (y) a fraction, of which (I) the numerator is the principal amount
      of the Outstanding Debentures then being converted, and (II) the denominator
      is
      the principal amount of the Outstanding Debentures.

    

    10. If,
      at
      any time while any portion of this Debenture remains outstanding, the Company
      effectuates a stock split or reverse stock split of its Common Stock or issues
      a
      dividend on its Common Stock consisting of shares of Common Stock, the
      Conversion Price or the Lowest Fixed Conversion Price, if any, and any other
      fixed amounts calculated as contemplated hereby or by any of the other
      Transaction Agreements shall be equitably adjusted to reflect such action.
      By
      way of illustration, and not in limitation, of the foregoing, (i) if the Company
      effectuates a 2:1 split of its Common Stock, thereafter, with respect to any
      conversion for which the Company issues shares after the record date of such
      split, the Lowest Fixed Conversion Price, if any, shall be deemed to be one-half
      of what it had been immediately prior to such split; (ii) if the Company
      effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
      to any conversion for which the Company issues shares after the record date
      of
      such reverse split, the Lowest Fixed Conversion Price shall be deemed to be
      ten
      times what it had been calculated to be immediately prior to such split; and
      (iii) if the Company declares a stock dividend of one share of Common Stock
      for
      every 10 shares outstanding, thereafter, with respect to any conversion for
      which the Company issues shares after the record date of such dividend, the
      Conversion Price (whether or not based on a Lowest Fixed Conversion Price)
      shall
      be deemed to be such amount multiplied by a fraction, of which the numerator
      is
      the number of shares (10 in the example) for which a dividend share will be
      issued and the denominator is such number of shares plus the dividend share(s)
      issuable or issued thereon (11 in the example).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    11. The
      Holder of the Debenture, by acceptance hereof, agrees that this Debenture is
      being acquired for investment and that such Holder will not offer, sell or
      otherwise dispose of this Debenture or the shares of Common Stock issuable
      upon
      conversion thereof except under circumstances which will not result in a
      violation of the Act or any applicable state Blue Sky or foreign laws or similar
      laws relating to the sale of securities.

    

    12. This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New York for contracts to be wholly performed in such state and without
      giving effect to the principles thereof regarding the conflict of laws. Each
      of
      the parties consents to the exclusive jurisdiction of the federal courts whose
      districts encompass any part of the County of New York or the state courts
      of
      the State of New York sitting in the County of New York in connection with
      any
      dispute arising under this Debenture and hereby waives, to the maximum extent
      permitted by law, any objection, including any objection based on forum
      non coveniens,
      to the
      bringing of any such proceeding in such jurisdictions. To the extent determined
      by such court, the Company shall reimburse the Holder for any reasonable legal
      fees and disbursements incurred by the Holder in enforcement of or protection
      of
      any of its rights under any of this Debenture. 

    

    13. JURY
      TRIAL WAIVER. The
      Company and the Holder hereby waive a trial by jury in any action, proceeding
      or
      counterclaim brought by either of the Parties hereto against the other in
      respect of any matter arising out of or in connection with this Debenture.
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    14. (i) Prior
      to
      the Maturity Date, the following shall constitute an "Event of
      Default":

    

    
      	 	 	
              a.

            	
              The
                Company shall default in the payment of principal or interest on
                this
                Debenture or any other Debenture in this Series or any other amount
                due
                hereunder or thereunder (including payment of a Redemption Amount,
                as
                defined below), and, (i) with respect to a payment of interest on
                a
                Scheduled Interest Payment Date or, unless the relevant Redemption
                Notice,
                as defined below, provides otherwise, the payment of a Redemption
                Amount
                on a Redemption Due Date, as defined below, such default shall continue
                for a period of five (5) Trading Days after the Holder gives the
                Company’s
                written notice thereof, and (ii) in all other instances, such default
                shall continue for a period of five (5) Trading Days;
                or

            

    

    

    
      	 	 	
              b.

            	
              Any
                of the representations or warranties made by the Company herein,
                in the
                Securities Purchase Agreement or any of the other Transaction Agreements
                or in any certificate or financial or other written statements heretofore
                or hereafter furnished by the Company in connection with the execution
                and
                delivery of this Debenture or the Securities Purchase Agreement shall
                be
                false or misleading in any material respect at the time made;
                or

            

    

    

    
      	 	 	
              c.

            	
              Subject
                to the terms of the Securities Purchase Agreement, the Company fails
                to
                authorize or to cause its Transfer Agent to issue shares of Common
                Stock
                upon exercise by the Holder of the conversion rights of the Holder
                in
                accordance with the terms of this Debenture (provided, however, that
                for
                purposes of this provision, such failure to cause the Transfer Agent
                to
                issue such shares shall not be deemed to occur until two (2) Trading
                Days
                after the Delivery Date), fails to transfer or to cause its Transfer
                Agent
                to transfer any certificate for shares of Common Stock issued to
                the
                Holder upon conversion of this Debenture and when required by this
                Debenture or any other Transaction Agreement, and such transfer is
                otherwise lawful, or fails to remove any restrictive legend on any
                certificate or fails to cause its Transfer Agent to remove such restricted
                legend, in each case where such removal is lawful, as and when required
                by
                this Debenture, or any other Transaction Agreement, and any such
                failure
                shall continue uncured for ten (10) Trading Days;
                or

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	 	
              d.

            	
              The
                Company shall fail to perform or observe, in any material respect,
                any
                other covenant, term, provision, condition, agreement or obligation
                of any
                Debenture in this series and such failure shall continue uncured
                for a
                period of thirty (30) days after the Company’s receipt written notice from
                the Holder of such failure; or

            

    

    

    
      	 	 	
              e.

            	
              The
                Company shall fail to perform or observe, in any material respect,
                any
                covenant, term, provision, condition, agreement or obligation of
                the
                Company under any of the Transaction Agreements and such failure,
                if
                capable of being cured, shall continue uncured for a period of thirty
                (30)
                days after the Holder gives the Company written notice thereof (but
                if not
                capable of being cured, such thirty day period shall be deemed expired
                immediately upon the giving of such notice);
                or

            

    

    

    
      	 	 	
              f.

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

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	 	
              g.

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

            

    

    

    
      	 	 	
              h.

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

            

    

    

    
      	 	 	
              i.

            	
              Any
                money judgment, writ or warrant of attachment, or similar process
                in
                excess of Seven Hundred Fifty Thousand ($750,000) Dollars in the
                aggregate
                shall be entered or filed against the Company or any of its properties
                or
                other assets and shall remain unpaid, unvacated, unbonded or unstayed
                for
                a period of sixty (60) days or in any event later than five (5) days
                prior
                to the date of any proposed sale thereunder;
                or

            

    

    

    
      	 	 	
              j.

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

            

    

    

    
      	 	 	
              k.

            	
              The
                Company shall have its Common Stock suspended from trading on, or
                delisted
                from, the Principal Trading Market for in excess of fifteen (15)
                Trading
                Days; or

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	 	
              l.

            	
              There
                shall be a Special Registration Default (as defined
                below).

            

    

    

    (ii) After
      the
      Maturity Date, the term “Event of Default” shall mean:

    

    
      	 	 	
              a.

            	
              The
                Company shall default in the payment of principal or interest on
                this
                Debenture or any other amount due hereunder, and, in any such instance,
                the same shall continue for a period of five (5) Trading Days; or
                

            

    

    

    
      	 	 	
              b.

            	
              Subject
                to the terms of the Securities Purchase Agreement, the Company fails
                to
                authorize or to cause its Transfer Agent to issue shares of Common
                Stock
                upon exercise by the Holder of the conversion rights of the Holder
                in
                accordance with the terms of this Debenture (provided, however, that
                for
                purposes of this provision, such failure to cause the Transfer Agent
                to
                issue such shares shall not be deemed to occur until two (2) Trading
                Days
                after the Delivery Date), fails to transfer or to cause its Transfer
                Agent
                to transfer any certificate for shares of Common Stock issued to
                the
                Holder upon conversion of this Debenture and when required by this
                Debenture or any other Transaction Agreement, and such transfer is
                otherwise lawful, or fails to remove any restrictive legend on any
                certificate or fails to cause its Transfer Agent to remove such restricted
                legend, in each case where such removal is lawful, as and when required
                by
                this Debenture, or any other Transaction Agreement, and any such
                failure
                shall continue uncured for tem (10) Trading
                Days.

            

    

    

    (iii) If
      an
      Event of Default shall have occurred and is continuing, then, 

    

    (x)
      unless and until such Event of Default shall have been cured or waived in
      writing by the Holder (which waiver shall not be deemed to be a waiver of any
      subsequent default), at the option of the Holder and in the Holder’s sole
      discretion, but without further notice from the Holder, the unpaid amount of
      this Debenture, computed as of such date, will bear interest at the rate (the
      “Default Rate”) equal to eighteen percent (18%) per annum or the highest rate
      allowed by law, whichever is lower, from the date of the Event of Default to
      until and including the date actually paid; and any partial payments shall
      be
      applied first to all accrued interest and then to principal; and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (y)
      at
      any time thereafter, and in each and every such case, unless such Event of
      Default shall have been cured or waived in writing by the Holder (which waiver
      shall not be deemed to be a waiver of any subsequent default), at the option
      of
      the Holder and in the Holder's sole discretion, the Holder may elect to redeem
      all or part of the Unconverted Debenture (as defined below) on the terms
      provided in Section 15 hereof.

    

    (iv) (A)
      The
      term “Special Registration Default” means either an Initial Special Registration
      Default or an Increased Special Registration Default (as those terms are defined
      below). 

    

    (B)
      If,
      as of the date which is two hundred seventy (270) days after the Issue Date
      (the
“Initial Default Effective Date”), the Registration Statement is not effective
      with respect to the resale by the Holder of a number of shares (the “Initial
      Full Registration Shares”) at least equal to the sum of 

    

    (1)
      (x)
      the principal amount of the Unconverted Debenture as of the date of the Initial
      Special Registration Default Notice (as defined below), divided by (y) the
      Fixed
      Conversion Price then in effect, plus 

    

    (2)
      the
      Held Shares (as defined in the Registration Rights Agreement) of the Holder
      in
      excess of the number of shares actually registered for the Holder (the
“Unregistered Held Shares”),

    

    the
      Holder may, by written notice (an “Initial Special Registration Default Notice”)
      to the Company at any time before the effective date of a registration statement
      covering the sale of such number of shares (which might be adjusted based on
      events subsequent to such Initial Default Effective Date), declare a default
      under this Debenture (such default, an “Initial Special Registration
      Default”).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (C)
      If,
      as a result of the application of the provisions of Section 4(g) of the
      Securities Purchase Agreement, there is an Increased Registered Shares Date,
      but, as of the date which is one hundred eighty hundred (180) days after such
      Increased Registered Shares Date (an “Increased Default Effective Date”), the
      Registration Statement is not effective with respect to the resale by the Holder
      of a number of shares (the “Increased Full Registration Shares”) at least equal
      to the sum of 

    

    (1)
      (x)
      the principal amount of the Unconverted Debenture as of the date of the
      Increased Special Registration Default Notice (as defined below), divided by
      (y)
      the Fixed Conversion Price then in effect, plus 

    

    (2)
      the
      Held Shares (as defined in the Registration Rights Agreement) of the Holder
      in
      excess of the number of shares actually registered for the Holder (the
“Unregistered Held Shares”),

    

    the
      Holder may, by written notice (an “Increased Special Registration Default
      Notice”) to the Company at any time before the effective date of a registration
      statement covering the sale of such number of shares (which might be adjusted
      based on events subsequent to the Increased Default Effective Date), declare
      a
      default under this Debenture (such default, an “Increased Special Registration
      Default”). 

    

    (D)
      Anything in the foregoing provisions of this Section 14 to the contrary
      notwithstanding, an Initial Special Registration Default Notice or an Increased
      Special Registration Default Notice, as the case may be, may, in the discretion
      of the Holder, specify that if the Company’s failure to pay the relevant
      Redemption Amount within five (5) Trading Days after the Redemption Due Date
      will, without further notice, constitute an Event of Default with respect to
      the
      balance of this Debenture (or any smaller portion thereof designated by the
      Holder). 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    15.
       A. The
      Company acknowledges that if there is an Event of Default, the Holder may
      require the Company to immediately redeem all or any part of the outstanding
      portion of this Debenture for an amount equal to the Redemption Amount (as
      defined below). The Redemption Amount shall be paid in cash by the Company
      to
      the Holder.

    

    B. For
      purposes of this Debenture, the following terms shall have the meanings
      indicated below: 

    

    “Unconverted
      Debenture” means the principal amount of this Debenture which has not been
      converted as of the relevant date. 

    

    “Redemption
      Payment Date” means the date on which the Company actually pays the Redemption
      Amount.

    

    “Redemption
      Amount” means the amount equal to:

     

    
      	 	 	
              V 

            	 	x 
	
              M 

            	 	
               

            	 	 
	 	 	
              CP 

            	 	 

    

    

    where:

    

    “V”
means
      the principal of an Unconverted Debenture plus any accrued but unpaid interest
      thereon;

    

    “CP”
      means the Payment Conversion Price in effect on the date (the “Redemption Notice
      Date”) of the Redemption Notice (as defined below); provided, however, if the
      Redemption Amount is not paid in full on or before the Redemption Due Date,
“CP”
means the lower of (x) the Payment Conversion Price in effect on the Redemption
      Notice Date or (y) the lowest Payment Conversion Price in effect during the
      period commencing on the Redemption Due Date and ending on the Redemption
      Payment Date; and 

    

    “M”
means
      the highest closing price per share of the Common Stock during the period
      beginning on the Redemption Notice Date and ending on the Redemption Payment
      Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    C. The
      Holder of an Unconverted Debenture may elect to redeem a portion of such
      Unconverted Debenture without electing to redeem the balance of the Unconverted
      Debenture. The Holder’s option to redeem all or part of the Unconverted
      Debenture shall be exercised by the Holder giving written notice of the exercise
      of this provision by the Holder (a “Redemption Notice”) at any time after a
      relevant Event of Default has occurred but before such Event of Default is
      cured.. The Redemption Notice shall specify (a) the date (the “Redemption Due
      Date”) on which the Redemption Amount shall be paid, which date shall be at
      least five (5) Trading Days after the date (a “Redemption Notice Date”) on which
      the Holder Redemption Notice is given, and (b) the wire instructions for the
      account to which the Redemption Amount is to be paid; provided, however, that
      the Company shall have the right to accelerate the date of such
      payment.

    

    D. If
      all of
      the Unconverted Debentures are being redeemed pursuant to this Section 5, then,
      upon payment in full of the Redemption Amount for all of the Unconverted
      Debentures in accordance with the provisions of this Section 5, the Holder
      shall
      deliver the Debenture to the Company marked “paid in full”.

    

    E. If
      the
      Redemption Amount is not timely paid by the Company, the Redemption Amount
      shall
      accrue interest at the Default Rate and the Holder may declare the Redemption
      Amount, together with such interest, due under this Debenture immediately due
      and payable, without presentment, demand, protest or notice of any kinds, all
      of
      which are hereby expressly waived, anything herein or in any note or other
      instruments contained to the contrary notwithstanding, and the Holder may
      immediately enforce any and all of the Holder's rights and remedies provided
      herein or any other rights or remedies afforded by law, including, but not
      necessarily limited to, the equitable remedy of specific performance and
      injunctive relief.

    

    F. Except
      as
      specified in this paragraph F, all provisions relating to an Event of Default
      shall apply to a Special Registration Default, including, but not limited to
      the
      provisions relating to the giving of a Redemption Notice. Notwithstanding the
      foregoing, if there is Special Registration Default, for determining the
      Redemption Amount with respect thereto, the principal amount of “V” in paragraph
      B above shall not exceed the amount which is equal to the sum of 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (1)
      the
      principal of this Debenture which, if converted at the Fixed Conversion Price
      then in effect, would be convertible into the number of shares equal to the
      excess of (x) the Full Registration Shares over (y) the number of shares which
      are registered for resale by the Holder (reduced by the number of shares which
      have previously been sold by the Holder pursuant to the effective Registration
      Statement), plus

    

    (2)
      the
      Held Shares Value (as defined in the Registration Rights Agreement) of the
      Unregistered Held Shares of the Holder.

    

    16. Nothing
      contained in this Debenture shall be construed as conferring upon the Holder
      the
      right to vote or to receive dividends or to consent or receive notice as a
      shareholder in respect of any meeting of shareholders or any rights whatsoever
      as a shareholder of the Company, unless and to the extent converted in
      accordance with the terms hereof.

    

    17. Any
      notice required or permitted hereunder shall be given in manner provided in
      the
      Section headed "NOTICES" in the Securities Purchase Agreement, the terms of
      which are incorporated herein by reference.

    

    [Balance
      of page intentionally blank]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

    

    18. In
      the
      event for any reason, any payment by or act of the Company or the Holder shall
      result in payment of interest which would exceed the limit authorized by or
      be
      in violation of the law of the jurisdiction applicable to this Debenture, then
      ipso
      facto
      the
      obligation of the Company to pay interest or perform such act or requirement
      shall be reduced to the limit authorized under such law, so that in no event
      shall the Company be obligated to pay any such interest, perform any such act
      or
      be bound by any requirement which would result in the payment of interest in
      excess of the limit so authorized. In the event any payment by or act of the
      Company shall result in the extraction of a rate of interest in excess of a
      sum
      which is lawfully collectible as interest, then such amount (to the extent
      of
      such excess not returned to the Company) shall, without further agreement or
      notice between or by the Company or the Holder, be deemed applied to the payment
      of principal, if any, hereunder immediately upon receipt of such excess funds
      by
      the Holder, with the same force and effect as though the Company had
      specifically designated such sums to be so applied to principal and the Holder
      had agreed to accept such sums as an interest-free prepayment of this Debenture.
      If any part of such excess remains after the principal has been paid in full,
      whether by the provisions of the preceding sentences of this Section or
      otherwise, such excess shall be deemed to be an interest-free loan from the
      Company to the Holder, which loan shall be payable immediately upon demand
      by
      the Company. The provisions of this Section shall control every other provision
      of this Debenture.

    

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

    

    Dated:
      _________________, 200__

     

    
      	 	 	 
	 	SKYSTAR
              BIO-PHARMACEUTICAL COMPANY
	 
 	 
 	 
 
	 	By:  	 
	 	 	 
	 	(Print Name)
	 	 
	 	(Title)

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

    

    SKYSTAR
      BIO-PHARMACEUTICAL COMPANY

    

    NOTICE
      OF
      CONVERSION

    OF

    8%
      CONVERTIBLE DEBENTURE SERIES 07-01 DUE __________, 2009

    CLASS
      B

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

    

    
      	TO:	
              SKYSTAR
                BIO-PHARMACEUTICAL COMPANY:

            

    

    Rm.
      10601, Jiezuo Plaza, No. 4, 

    Fenghui
      Road South 

    Gaoxin
      District, Xian Province, P.R. China

    
      	
            	Attn:
              CEO	
              VIA
                TELECOPIER TO: (011-86-29) 8819-3185

            

      	 	 	 

      	 	with a copy
              to: 	Richardson & Patel LLP, Attn: Kevin K.
              Leung, Esq. 

      	 	 	VIA TELECOPIER TO: (310)
              208-1154 

    

     

    FROM:
      _________________________________________________________
      (“Holder”)

    

    DATE:
      _______________________________________________ (the “Conversion
      Date”)

    

    
      	
              RE:

            	
              Conversion
                of $_________________ principal amount (the “Converted Debenture”) of the
                8% Convertible Debenture Series 07-01 Due __________, 2009, Class
                B No.
                07-01B-__ (the “Debenture”) of SKYSTAR BIO-PHARMACEUTICAL COMPANY (the
                “Company”) into ______________________ shares (the “Conversion Shares”) of
                Common Stock (defined below

            

    

    

    The
      captioned Holder hereby gives notice to the Company, pursuant to the Debenture
      of SKYSTAR BIO-PHARMACEUTICAL COMPANY that the Holder elects to convert the
      Converted Debenture into fully paid and non-assessable shares of Common Stock,
      $0.001 par value (the “Common Stock”), of the Company as of the Conversion Date
      specified above. Said conversion shall be based on the following Conversion
      Price (check
      and fill in one):

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              9

            	
              $________________,
                representing the Fixed Conversion Price (as defined in the
                Debenture)

            

    

     

    
      	
            	9	
              adjusted
                in accordance with the provisions of the
                Debenture

            

    

     

    
      	
              9

            	
              $________________,
                representing the Lowest Fixed Conversion
                Price

            

    

     

    
      	
            	9	
              adjusted
                in accordance with the provisions of the
                Debenture

            

    

     

    
      	
              9

            	
              
                $________________,
                  representing the Prepayment Conversion
                  Price

              

            

    

     

    Based
      on
      this Conversion Price, the number of Conversion Shares indicated above should
      be
      issued in the following name(s):

    

    Name
      and
      Record Address    Conversion
      Shares

    _______________________________  _______________

    _______________________________  _______________

    _______________________________  _______________

    

    As
      contemplated by the Debenture, this Notice of Conversion is being sent by
      facsimile to the telecopier number and officer indicated above. 

    

    If
      this
      Notice of Conversion represents the full conversion of the outstanding balance
      of the Converted Debenture, the Holder either (1) has previously surrendered
      the
      Converted Debenture to the Company or (2) will surrender (or cause to be
      surrendered) the Converted Debenture to the Company at the address indicated
      above by express courier within five (5) Trading Days after delivery or
      facsimile transmission of this Notice of Conversion. 

    

    The
      certificates representing the Conversion Shares should be transmitted by the
      Company to the Holder

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    o via
      express
      courier, or 

    

    o by
      electronic
      transfer

    

    within
      the time contemplated by the Debenture after receipt of this Notice of
      Conversion (by facsimile transmission or otherwise) to:

    

    _____________________________________

    _____________________________________

    _____________________________________

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    As
      contemplated by the Debenture, the Company should also pay all accrued but
      unpaid interest on the Converted Debenture to the Holder. 

    

    --If
      the
      Company elects to pay such interest in Common Stock, as contemplated by and
      subject to the provisions of the Debenture,6 
      such
      shares should be issued in the name of the Holder and delivered in the same
      manner as, and together with, the Conversion Shares.

    

    --If
      the
      Company elects or is required to pay the dividends in cash, such payment should
      be made by wire transfer as follows:7 

    

    ___________________________________

    

    ___________________________________

    

    ___________________________________
      

     

    
      	 	 	 
	 	(Print name of Holder)
	 
 	 
 	 
 
	 	By:  	 
	 	(Signature of Authorized Person)
	 	 
	 	(Printed Name and
              Title) 

    

     

    ___________________________

    6Number
      of
      shares based on applicable Payment Conversion Price (as defined in the
      Debenture).

    
      
        7Information
          should include the following:

        

        All
          Wires: 

        (1)
          Bank
          Name

        (2)
          Bank
          Address (including street, city, state) 

        (3)
          ABA
          or Wire Routing No. 

        (4)
          Account Name

        (5)
          Account Number

        

        If
          Wire
          is going to International (Non-US) Bank, all of the above plus:

        (6)
          SWIFT
          Number

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