8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):February 27, 2007

SKYSTAR BIO-PHARMACEUTICAL COMPANY

(Exact name of Registrant as specified in its charter)

Nevada	000-28153	33-0901534
(State or other jurisdiction of incorporation or organization)	Commission File Number	IRS Employer Identification Number
Rm. 10601, Jiezuo Plaza, No.4,
Fenghui Road South,
Gaoxin District, Xian Province, P.R. China		N/A
(Address of principal executive offices)		(Zip Code)

(8629) 8819-3188

(Registrant’s telephone number, including area code)

not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

On February 27, 2007, Skystar Bio-Pharmaceutical Company (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”), with several institutional and accredited investors (the “Purchasers”) pursuant to which the Company sold to the Purchasers $4.075 million in aggregate principal amount of 8% convertible debentures due February 28, 2009 (the “Debentures”), and warrants to purchase 4,075,000 shares of the common stock of the Company (the “Warrants”), in a private placement pursuant to Regulation D under the Securities Act of 1933 (the “Transaction”). Pursuant to a Registration Rights Agreement the Company executed with the Purchasers on February 27, 2007, the Company agreed to register all shares of common stock underlying the conversion of the Debentures and exercise of the Warrants in a resale registration statement (the “Registration Statement”). The Transaction closed on February 27, 2007. Gross proceeds from the sale to the Company were $4.075 million, of which $285,250 was paid to Pacific Ridge Capital who served as placement agent for the transaction and $52,500 were paid to counsel for the Purchasers in connection with the transaction. The Company also issued to the Placement Agent a warrant to purchase an aggregate of 570,500 shares with an exercise price of $1.00 per share and will have an expiration date of February 28, 2012.

The Debentures bear interest at 8% per year and are convertible into shares of the Company’s common stock at an original conversion price of $1.00 per share. Starting with the third month after the closing, the Company shall pay on a monthly basis, 4.77% of the principal of the Debenture(“Principal Repayment Amount”), and all accrued interest. At the Company’s option, payment shall be in cash or shares of common stock. If the Company pays in cash it shall also pay a 15% premium to the Principal Repayment Amount during the first 12 months of the Debenture, and a 25% premium thereafter.

The Company may pay this mandatory prepayment amount with common stock, if certain equity conditions are met, which include, among other things, the effectiveness of the Registration Statement. If the Company chooses to pay interest and principal with common stock, it will be based on the lower of (i) a 30% discount to the volume weighted average price for the immediately preceding five consecutive trading days and (ii) the fixed conversion price in effect on such principal payment date.

The Warrants entitle each Purchaser to purchase a number of shares of common stock equal to one hundred percent of the number of shares of common stock that would be issuable upon conversion of the Debenture purchased by such Purchaser in the Transaction. The Warrants have an initial exercise price of $1.20 per share.

The conversion price and warrant strike price are subject to downward adjustments should the Company issue more shares of common stock or securities convertible into common stock for capital raising activities for less than the conversion price or exercise price. In the case of adjustments to the conversion price of the Debentures and the exercise price of the Warrants, the conversion price shall be adjusted to the consideration received or receivable by the Company for each share of common stock issued or issuable. The conversion and exercises prices are also subject to adjustment for other customary adjustment events such as any stock dividend, stock split, reverse stock split or other similar transaction.

The Company may require the conversion of the Debentures provided that (a) certain equity conditions are met, which include, among other things, the effectiveness of the Registration Statement and that (b) for the 20 consecutive trading days prior to such election the daily volume weighted average price exceeds$2.75 (as appropriately adjusted for any stock dividend, stock split, reverse stock split or other similar transaction) and the average trading volume equals or exceeds 45,000 shares of common stock.

The holders of the Debentures have the right at any time to convert all or any part of the outstanding principal amount of the Debentures and any accrued and unpaid interest into common stock of the Company at the then effective conversion price.

In case of an event of default under the Debentures or a change on control of the Company, each as defined in the Debentures, each Holder shall have the right to require the Company to redeem all or any part of the unpaid principal amount of the Debenture.

There are two classes of Debentures and Warrants - Class A and Class B. Class A Debentures and Warrants are substantially similar to Class B Debentures and Warrants. However, for Class A Debentures and Warrants, absent a waiver upon 60 days prior written notice to the Company by a holder, no stock may be issued to any holder under any provision of the Class A Debentures or Class A Warrants which would result in the holder being the beneficial owner of more than 4.99% of the Company’s issued and outstanding common stock. This provision is absent in Class B Debentures and Warrants.

The Company may prepay the Debentures, if certain equity conditions are met, which include, among other things, the effectiveness of a Registration Statement covering the resale of the shares issuable upon conversion of the Debentures and have been met for each of the 20 trading days before the prepayment date, at a redemption price equal to (a) 150% of outstanding principal during the first 12-months of the Debentures or (b) 120% of outstanding principal thereafter, plus all accrued and unpaid interest. Any prepayment must be for all outstanding principal on all outstanding Debentures. The Company must give at least 20 trading days (but not more than 40 trading days) notice of any prepayment. The Company’s right to prepay the Debentures is subordinate to the rights of the holders of the Debentures to exercise their conversion rights.

The Registration Rights Agreement requires that a registration statement registering the resale of the common stock into which the Debentures are convertible and for which the Warrants are exercisable, as well as certain other shares of the Company’s common stock be filed with the Securities and Exchange Commission not later than April 13, 2007 and be declared effective by the SEC not later than May 28, 2007, if there is no SEC review of the Registration Statement and June 27, 2007 if there is SEC review. If the Registration Statement with respect to the shares underlying the Debentures is not declared effective by November 26, 2007, the Debenture will be deemed in default with respect to the Debenture that has not been paid or for which shares have been registered. Failure to meet these deadlines will result in liquidated damages of 2% of the aggregate purchase price of the Debentures and Warrants per month, pro rated for partial periods.

In connection with the Agreement, the officers, directors and 5% stockholders and their affiliates (collectively, “Principals”) have agreed to abide by certain restrictions on their transferability of their Company common stock holdings. No Principal shall sell their common stock on the open market or otherwise transfer their stock, subject to certain exceptions, until the earlier of (a) 75% of the Debentures have been repaid and/or converted into Company common stock, and (b) the latter of (i) 90 days after such person is no longer a Principal and (ii) 180 days after the Registration Statement covering Company common stock underlying the Debentures and Warrants has been declared effective.

The foregoing summary of the Debentures, Warrants and related agreements is qualified in its entirety by the terms of the Agreement, the form of Convertible Debenture, the form of Warrant and the Registration Rights Agreement included as Exhibits hereto and incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The disclosures under Item 1.01 are incorporated in this Item 2.03 by reference.

Item 3.02. Unregistered Sales of Equity Securities

The disclosures under Item 1.01 are incorporated in this Item 3.02 by reference.

The Debentures and the Warrants were issued to accredited investors in a private placement transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D promulgated thereunder.

The Debentures and the Warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or applicable state securities laws and may not be offered or sold in the United States absent registration under the Securities Act and applicable state securities laws or an applicable exemption from registration requirements.

Item 9.01. Financial Statements and Exhibits

(d)   Exhibits
Exhibit Number	Exhibit Title or Description
10.1	Form of Securities Purchase Agreement, dated as of February 26, 2007 by and among the Company and the Purchasers
10.2	Form of Class A Convertible Debenture
10.3	Form of Class B Convertible Debenture
10.4	Form of Class A Warrant
10.5	Form of Class B Warrant
10.6	Form of Registration Rights Agreement, dated as of February 26, 2007 by and among the Company and the Purchasers
10.7	Form of Company Principal Lockup Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SKY-STAR BIOPHARMACEUTICAL COMPANY
Date: March 5, 2007	By:	/s/ Weibing Lu
		Weibing Lu
		Chief Executive Officer

EX-10.1

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of February 26, 2007 (this “Agreement”), is entered into by and between SKYSTAR BIO-PHARMACEUTICAL COMPANY, a Nevada corporation with headquarters located at Rm. 10601, Jiezuo Plaza, No. 4, Fenghui Road South, Gaoxin District, Xian Province, P.R. China (the “Company”), and each individual or entity named on an executed counterpart of the signature page hereto (each such signatory is referred to as a “Buyer”) (each agreement with a Buyer being deemed a separate and independent agreement between the Company and such Buyer, except that each Buyer acknowledges and consents to the rights granted to each other Buyer [each, an “Other Buyer”] under such agreement and the Transaction Agreements, as defined below, referred to therein).

WITNESSETH:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, interalia, by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to lend to the Company, subject to and upon the terms and conditions of this Agreement and acceptance of this Agreement by the Company, the Purchase Price (as defined below), the repayment of which will be represented by 8% Convertible Debentures Series 07-01 of the Company (the “Convertible Debentures”), which Convertible Debentures will be convertible into shares of Common Stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the conditions of such Convertible Debentures, together with the Warrants (as defined below) exercisable for the purchase of shares of Common Stock;

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.AGREEMENT TO PURCHASE; PURCHASE PRICE.

a.Purchase.

(i)Subject to the terms and conditions of this Agreement and the other Transaction Agreements, the undersigned Buyer hereby agrees to loan to the Company the principal amount set forth on the Buyer’s signature page of this Agreement (the “Purchase Price”), out of the aggregate amount being loaned by all Buyers of $4,075,000 (the “Aggregate Purchase Price”).

(ii)The Purchaser’s signature page shall indicate whether the Debenture and Warrant to be issued by the Company and to be purchased by the Purchaser are (i) both the Class A forms of those securities or (ii) both the Class B forms of those securities. Unless specified as to Class or the context otherwise requires, each reference in the Transaction Agreements to (x) “Debentures” refers to both the Class A and the Class B Debentures and (y) “Warrants’ refers to both the Class A and the Class B Warrants.

(ii)The obligation to repay the loan from the Buyer shall be evidenced by the Company’s issuance of one or more Convertible Debentures to the Buyer in the aggregate principal amount equal to the Purchase Price (the Convertible Debentures issued to the Buyer, the “Debentures”). Each Debenture (i) shall provide for a Conversion Price (as defined below), which price may be adjusted from time to as provided in the Debenture, and (ii) shall have the terms and conditions of, and be substantially in the form attached hereto as, Annex I-A or Annex I-B, as the case may be.

(iii)On the Closing Date (as defined below), the Purchase Price shall be paid by the Buyer and the Company will deliver the relevant Certificates (as defined below) to the Escrow Agent, as provided in Section 1(c) hereof.

(v)The loan to be made by the Buyer and the issuance of the Debentures and the Warrants (collectively, the “Purchased Securities”) to the Buyer are sometimes referred to herein and in the other Transaction Agreements as the purchase and sale of the Debentures and the Warrants.

b.Certain Definitions.As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

“Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

“Payment Conversion Price” means the lower of (i) the Prepayment Conversion Price or (ii) the Lowest Fixed Conversion Price.

“Buyer Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Buyer pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as defined below).

“Buyer’s Allocable Share” means the fraction, of which (i) the numerator is the Buyer’s Purchase Price and (ii) the denominator is the Aggregate Purchase Price.

“Certificate of Incorporation” means the certificate of incorporation, articles of incorporation or other charter document (howsoever denominated) of the Company, as amended to date.

“Certificates” means the (x) the original ink-signed Debentures and (y) the original ink-signed Warrants, each duly executed by the Company and issued in the name of the Buyer on the Closing Date.

“Closing Date” means the date of the closing of the purchase and sale of the Purchased Securities.

“Closing Price” means the 4:00 P.M. closing bid 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.

“Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“Company Counsel” means Richardson & Patel LLP.

“Company Principal’s Agreement” has the meaning ascribed to in Section 4(h).

“Company's SEC Documents” means the Company’s filings on the SEC’s EDGAR system which are listed on Annex VI annexed hereto, to the extent available on EDGAR or otherwise provided to the Buyer as indicated on said Annex VI.

“Conversion Certificates” means certificates representing the Conversion Shares or the Warrant Shares, as the case may be.

“Conversion Date” means the date a Holder submits a Notice of Conversion, as provided in the Debentures.

“Conversion Price” means, (i) with respect to a voluntary conversion by the Holder of the Debenture or a Mandatory Conversion (as defined in the Debentures), the Voluntary Conversion Price and (ii) with respect to all other conversions, the Payment Conversion Price.

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the Debentures and/or in payment of accrued interest, as contemplated in the Debentures.

“Converting Holder” means the Holder of Debentures or Warrants, as the case may be, who or which has submitted a Notice of Conversion (as contemplated by the Debentures) or a Notice of Exercise (as contemplated by the Warrants).

“Delivery Date” has the meaning ascribed to it, as may be relevant, (x) in the Debentures (with respect to Conversion Shares), or (y) in the Warrants (with respect to Warrant Shares).

"Disclosure Annex" means Annex VIII to this Agreement; provided, however, that the Disclosure Annex shall be arranged in sections corresponding to the identified Sections of this Agreement, but the disclosure in any such section of the Disclosure Annex shall qualify other provisions in this Agreement to the extent that it would be readily apparent to an informed reader from a reading of such section of the Disclosure Annex that it is also relevant to other provisions of this Agreement.

“Effective Date” means the date the Registration Statement covering the Registrable Securities is declared effective by the SEC.

“Escrow Agent” means Krieger & Prager LLP, the escrow agent identified in the Joint Escrow Instructions attached hereto as Annex II (the “Joint Escrow Instructions”).

“Escrow Funds” means the Purchase Price delivered to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof.

"Escrow Property" means the Escrow Funds and the Certificates delivered to the Escrow Agent, as contemplated by Section 1(c) hereof.

“Exercise Price” means the per share exercise price of the relevant Warrant.

“Fixed Conversion Price” means $1.00 (as such amount may be adjusted as provided herein or in the Debentures).

“Holder” means the Person holding the relevant Securities at the relevant time.

“Issue Date Conversion Share” means, with respect to the Closing Date, the number of shares of Common Stock equal to (x) the Purchase Price paid by the Buyer on the Closing Date, divided by (y) the amount which would have been the Conversion Price on such Closing Date, were such date a Conversion Date (without regard to whether or not the Debentures were convertible on such date in accordance with their terms).

“Last Audited Date” means December 31, 2005.

“Lowest Fixed Conversion Price” means the lowest New Transaction Price (as defined below; as that amount may subsequently be adjusted as provided in the Debentures or herein).

“Majority in Interest of the Holders” means one or more Holders whose respective outstanding principal amounts of the Debentures held by each of them, as of the relevant date, aggregate more than seventy-five percent (75%) of the aggregate outstanding principal amounts of the outstanding Debentures held by the Buyer and all Other Buyers on that date.

“Material Adverse Effect” means an event or combination of events, which individually or in the aggregate, would reasonably be expected to (x) adversely affect the legality, validity or enforceability of the Purchased Securities or any of the Transaction Agreements, (y) have or result in a material adverse effect on the results of operations, assets, or financial condition of the Company and its subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to perform fully on a timely basis its material obligations under any of the Transaction Agreements or the transactions contemplated thereby.

“Material Asset” means any asset of the Company and/or of one or more Subsidiaries which alone or together with other assets of the Company and/or one or more subsidiaries is material to the operations or business of the Company or such Subsidiary, individually or in the aggregate; it being understood that any proprietary intellectual property owned by the Company or any one or more Subsidiaries and the license to the Company or any Subsidiary of any intellectual property are conclusively considered to be a “Material Asset”; provided, however, that the foregoing shall not be deemed to limit other any other assets from being deemed a “Material Assets.”

“Material Asset Security Interest” means a security interest in a Material Asset or any other right (howsoever denominated) giving a third party an ownership or other interest in, or a right to dispose of, such Material Asset.

“Maturity Date” has the meaning ascribed to it in the Convertible Debentures.

“New Common Stock” means shares of Common Stock and/or securities convertible into, and/or other rights exercisable for, Common Stock, which are offered or sold in a New Transaction.

“New Investor” means the third party investor, purchaser or lender (howsoever denominated) in a New Transaction.

“New Transaction” means, unless consented to by a Majority in Interest of the Holders (which consent is in the sole discretion of the Holders and may be withheld for any reason or for no reason whatsoever),

(i) the offer or sale of New Common Stock by or on behalf of the Company to a New Investor and/or

(ii) the grant of a security interest in, or the pledge of, shares of the Company’s Common Stock or securities convertible into or exercisable for the Company’s Common Stock to any other party, or the pledge of such shares or securities to any other party, whether such grant or pledge is made by the Company or any other holder thereof, in connection with a transaction in which the Company borrows or is otherwise obligated to pay funds to a third party,

in a transaction offered or consummated after the date hereof; provided, however, that it is specifically understood that the term “New Transaction” (1) unless consented to otherwise by a Majority in Interest of the Holders (which consent is in the sole discretion of the Holders and may be withheld for any reason or for no reason whatsoever), includes, but is not limited to, a sale of Common Stock or of a security convertible into Common Stock or an equity or credit line transaction, but (2) does not include (a) the sale of the Purchased Securities to the Buyer and the Other Buyers, (b) the issuance of Common Stock upon the exercise or conversion of options, warrants or convertible securities outstanding on the date hereof, or in respect of any other financing agreements as in effect on the date hereof and identified in the Disclosure Annex (provided the same is not amended after the date hereof) or in the Company’s SEC Documents (provided the same is not amended after the date hereof), (c) the issuance of New Common Stock pursuant to a non-employee director stock option plan of the Company, duly adopted by the shareholders of the Company, the issuance of New Common Stock pursuant to a consultants’ stock incentive plan of the Company, duly adopted by the shareholders of the Company, provided such plan does not contemplate the issuance, in the aggregate, of a number of shares in excess of five percent (5%) of the number of outstanding shares of Common Stock as of the date of adoption of such plan, (e) the issuance of Common Stock upon the exercise of any options or warrants referred to in the preceding clauses of this paragraph (provided the same is not amended after the date hereof to an exercise price below the highest Exercise Price of any Warrants issued pursuant to any of the Transaction Agreements), (f) the issuance of stock options or warrants to employees, officers or directors of the Company, provided that all such shares are subject to a Company Principal’s Agreement; provided, however, that such shares issued to employees who are not otherwise officers, directors or beneficial owners of five percent (5%) or more of the Company’s Common Stock, which shares, when added to the shares issued to all other such employees, do not exceed five percent (5%) of the number of outstanding shares of Common Stock as of the date of the issuance, do not need to be subject to a Company Principal’s Agreement, or (g) the issuance of shares to a Strategic Partner.

“Payment Conversion Price” has the meaning ascribed to in the Debenture.

“Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

“Placement Agent” means Pacific Ridge Capital, LLC.

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

“Prepayment Date” has the meaning ascribed to it in the Debentures.

“Principal Trading Market” means the Over the Counter Bulletin Board or such other market on which the Common Stock is principally traded at the relevant time, but shall not include the “pink sheets.”

“Registrable Securities” has the meaning ascribed to it in the Registration Rights Agreement.

“Registration Rights Agreement” means the Registration Rights Agreement in the form annexed hereto as Annex IV as executed by the Buyer and the Company simultaneously with the execution of this Agreement.

“Registration Statement” means an effective registration statement covering the Registrable Securities.

“Regular Trading Day” means the regular trading hours of a Trading Day on the Principal Trading Market shall be open for business (as of the date of this Agreement, such hours are, for most Trading Days, approximately 9:00 or 9:30AM to approximately 4PM Eastern Time; provided, however, that certain Trading Days may have shorter regular trading hours; and provided, further, that the regular trading hours may be subsequently changed for the Principal Trading Market).

“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.

“Rule 144" means (i) Rule 144 promulgated under the 1933 Act or (ii) any other similar rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration under the 1933 Act..

“Securities” means the Purchased Securities and the Shares.

“Shares” means the shares of Common Stock representing any or all of the Conversion Shares and the Warrant Shares.

“Short Sales” means short sales of or any hedging transactions with respect to, the Common Stock or sales of put options or similar instruments with respect to the Common Stock; provided, however, that, for purposes of this Agreement, the term “Short Sale” shall not include sales of the Company’s Common Stock or the sales of put option or similar instruments which are executed (i) after the Buyer has submitted a Notice of Conversion requesting conversion of the Debenture, for up to the number of shares of Common Stock anticipated to be issued to the Buyer as a result of such conversion, (ii) after the Buyer has submitted a Notice of Exercise with respect to the Buyer’s Warrant or after an Automatic Exercise Date (as defined in the Warrant), for up to the number of shares of Common Stock anticipated to be issued to the Buyer upon such exercise of the Warrant, and/or (iii) on or after a Required Payment Date (as defined in the Debenture), for up to the number of shares of Common Stock anticipated to be issued to the Buyer in payment of a Required Payment (as defined in the Debenture).

“State of Incorporation” means the State of Nevada.

“Strategic Partner” means a third party, whether or not affiliated with the Company, as of the date hereof, which party (i) is engaged in a business in which the Company is or plans to be engaged or a similar or related business, and (ii) subsequently purchases (or enters into an agreement to purchase) equity securities of the Company (or securities convertible into equity securities of the Company), if (a) such purchase is made in connection with or accompanied or followed by one or more of the following: the licensing by the Company of all or any portion of its technology to such third party, the licensing by such third party of all or any portion of its technology to the Company, or any other coordination of all or a portion of their respective business activities or operations by the Company and such third party or (b) no registration statement is filed for such equity securities until after the Final Lock Up Date (as defined in Section 4(g) below).

"Subsidiary" means, as of the relevant date, any subsidiary of the Company (whether or not included in the Company's SEC Documents) whether now existing or hereafter acquired or created.

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

“Transaction Agreements” means this Agreement, the Debentures, the Joint Escrow Instructions, the Registration Rights Agreement, the Warrants, each Company Principal’s Agreement, and the Disclosure Annex and includes all ancillary documents executed and delivered pursuant to those agreements.

“Transfer Agent” means, at any time, the transfer agent for the Company’s Common Stock.

“Voluntary Conversion Price” means the lowest of (i) the Fixed Conversion Price, (ii) the Lowest Fixed Conversion Price, if any, or (iii) during the pendency of an Event of Default (as defined in the Debentures), the Prepayment Conversion Price.

“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.

“Warrants” means (i) the warrants referred to in Section 4 hereof and (ii) the Added Warrants (as defined below), if any.

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

“Wire Instructions” means the Purchase Price Wire Instructions as provided in Annex X annexed hereto.

c.Form of Payment; Delivery of Certificates.

(i)The Buyer shall pay the Purchase Price by delivering immediately available good funds in United States Dollars to the Escrow Agent no later than the date prior to the Closing Date.

(ii)Within two (2) Trading Days after the Company is notified that the Escrow Agent has on deposit cleared funds from or on behalf of one or more Buyers an aggregate amount equal to the Aggregate Purchase Price and the Company shall have accepted the Buyer’s subscription hereunder, but in no event later than the Closing Date, the Company will deliver the relevant Certificates for the Debentures and the Warrants to the Escrow Agent. Such Certificates shall be held in escrow by the Escrow Agent until released as provided in the Joint Escrow Instructions.

(iii)By signing this Agreement, each of the Buyer and the Company, subject to acceptance by the Escrow Agent, agrees to all of the terms and conditions of, and becomes a party to, the Joint Escrow Instructions, all of the provisions of which are incorporated herein by this reference as if set forth in full.

d.Method of Payment. Payment into escrow of the Purchase Price shall be made to the Escrow Agent as provided in the Wire Instructions (see Annex X).

2.BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

The Buyer represents and warrants to, and covenants and agrees with, the Company, as of the date hereof and as of the Closing Date, as follows:

a.Without limiting Buyer's right to sell the Securities pursuant to an effective registration statement or otherwise in compliance with the 1933 Act, the Buyer is purchasing the Securities for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b.The Buyer is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act, (ii) experienced in making investments of the kind described in this Agreement and the other Transaction Agreements, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its Affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement and the other Transaction Agreements, and to evaluate the merits and risks of an investment in the Securities, and (iv) able to afford the entire loss of its investment in the Securities.

c.All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the relevant Securities under the 1933 Act or pursuant to an exemption from such registration.

d.The Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the 1933 Act and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

e.The Buyer and its advisors, if any, have been furnished with or have been given access to all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Purchased Securities which have been requested by the Buyer, including those set forth in any annex attached hereto. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, the Buyer has also had the opportunity to obtain and to review the Company's SEC Documents.

f.The Buyer understands that its investment in the Securities involves a high degree of risk.

g.If the Buyer is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code, as currently in effect), such Buyer hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Purchased Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Purchased Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. The Buyer’s subscription and payment for and continued beneficial ownership, if any, of the Securities will not violate any applicable securities or other laws of the Buyer’s jurisdiction.

h.If the Buyer is an individual, then the Buyer resides in the state or province identified in the address of the Buyer set forth on the Buyer’s signature page to this Agreement. If the Buyer is a partnership, corporation, limited liability company or other entity, then the office or offices of the Buyer in which its principal place of business is the address or addresses of the Buyer set forth on the Buyer’s signature page to this Agreement.

i.The Buyer hereby represents that, in connection with the Buyer’s investment or the Buyer’s decision to purchase the Securities, the Buyer has not relied on any statement or representation of any Person, including any such statement or representation by the Company or the Placement Agent or any of their respective controlling Persons, officers, directors, partners, agents and employees or any of their respective attorneys, except as specifically set forth herein. The Buyer agrees that none of (i) any Other Buyer, (ii) any controlling Persons, officers, directors, partners, agents, or employees of each respective Other Buyer or (iii) any of their respective attorneys shall be liable to the Buyer for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Purchased Securities or in connection with the Securities. Each of the Placement Agent, each Other Buyer and each of their respective controlling Persons, officers, directors, partners, agents and employees and each of their respective attorneys is a third party beneficiary of this provision.

j.The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

k.This Agreement and each of the other Transaction Agreements to which the Buyer is a party, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Buyer. This Agreement has been executed and delivered by the Buyer, and this

Agreement is, and each of the other Transaction Agreements to which the Buyer is a party, when executed and delivered by the Buyer (if necessary), will be valid and binding obligations of the Buyer enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally.

l.During the thirty (30) days prior to the execution of this Agreement, neither the Buyer nor any of the Buyer’s Affiliates has engaged in any Short Sales; provided, however, that unless and until the Company has affirmatively demonstrated by the use of specific clear and convincing evidence that Buyer engaged in Short Sales during such period, the Buyer shall be assumed to be in compliance with the provisions of this Section 2(l) and the Company shall remain obligated to fulfill all of its obligations under the Transaction Agreements; and provided, further, that the Company shall under no circumstances be entitled to request or demand that the Buyer affirmatively demonstrate that it has not engaged in any such Short Sales during such period as a condition to the Company’s fulfillment of its obligations under any of the Transaction Agreements and shall not assert the Buyer’s failure to demonstrate such absence of such Short Sales as a defense to any breach of the Company’s obligations under any of the Transaction Agreements.

m.The Buyer has taken no action which would give rise to any claim by any Person for brokerage commission, placement agent or finder's fees or similar payments by Buyer relating to this Agreement or the transactions contemplated hereby. Except for such fees arising as a result of any agreement or arrangement entered into by the Company without the knowledge of the Buyer (a “Company Fee”) and fees to the Placement Agent, the Company shall have no obligation with respect to such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this paragraph that may be due in connection with the transactions contemplated hereby. Buyer shall indemnify and hold harmless the Company, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect of any such claimed or existing fees (other than a Company Fee).

3.COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to the Buyer as of the date hereof and as of the Closing Date that, except as otherwise provided in the Disclosure Annex or in the Company’s SEC Documents:

a.Rights of Others Affecting the Transactions. There are no preemptive rights of any stockholder of the Company, as such, to acquire the Purchased Securities or the Shares. No other party has a currently exercisable right of first refusal which would be applicable to any or all of the transactions contemplated by the Transaction Agreements.

b.Status. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect. The Company has registered its stock and is obligated to file reports pursuant to Section 12 or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the “1934 Act”). The Common Stock is quoted on the Principal Trading Market. The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for quotation on the Principal Trading Market, and the Company has maintained all requirements on its part for the continuation of such quotation.

c.Authorized Shares.

(i)The authorized capital stock of the Company consists of (x) 50,000,000 shares of Common Stock, $0.001 par value per share, of which approximately 12,795,549 are outstanding as of the date hereof, and (y) 50,000,000 million shares of preferred stock, $0.001 par value per share, consisting of (1) 2,000,000 Series “A” shares, all of which are outstanding on the date hereof and (2) 48,000,000 Series “B” shares, all of which had been issued, but none of which are outstanding on the date hereof. Of the outstanding shares of Common Stock, approximately 7,894,598 shares are, to the best knowledge of the Company, beneficially owned by Affiliates of the Company.

(ii)There are no outstanding securities which are convertible into shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future. If any such securities are listed on the Disclosure Annex, the number or amount of each such outstanding convertible security and the conversion terms are set forth in said Disclosure Annex.

(iii)All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares on the Closing Date, were the Debentures fully converted and were the Warrant fully exercised on that date.

(iv)The Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued on conversion of, or in payment of interest on, the Debentures or upon exercise of the Warrants, in each case in accordance with their respective terms, will have been duly and validly issued, fully paid and non-assessable and will not subject the Holder thereof to personal liability by reason of being such Holder.

d.Transaction Agreements and Stock. This Agreement and each of the other Transaction Agreements, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company. This Agreement has been duly executed and delivered by the Company and this Agreement is, and the Debentures, the Warrants and each of the other Transaction Agreements, when executed and delivered by the Company (if necessary), will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally.

e.Non-contravention. The execution and delivery of this Agreement and each of the other Transaction Agreements by the Company, the issuance of the Securities in accordance with the terms hereof, and the consummation by the Company of the other transactions contemplated by this Agreement, the Debentures, the Warrants and the other Transaction Agreements do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the certificate of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect.

f.Approvals. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

g.Filings. None of the Company’s SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Since February 1, 2006, the Company has filed all annual and quarterly reports required to be filed by the Company with the SEC under Section 13(a) or 15(d) of the 1934 Act.

h.Absence of Certain Changes. Since the Last Audited Date, there has been no Material Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the Last Audited Date, except as provided in the Company’s SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other material tangible assets, or canceled any material debts owed to the Company by any third party or material claims of the Company against any third party, except in the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

i.Full Disclosure. There is no fact known to the Company (other than conditions known to the public generally or as disclosed in the Company’s SEC Documents) that has not been disclosed in writing to the Buyer that would reasonably be expected to have or result in a Material Adverse Effect.

j.Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Agreements. There are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transaction contemplated herein or that, alone or in the aggregate, could reasonably be expect to have a Material Adverse Effect.

k.Absence of Events of Default. Except as set forth in Section 3(e) hereof, no Event of Default (or its equivalent term), as defined in the respective agreement to which the Company or its Subsidiary is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such agreement), has occurred and is continuing, which would have a Material Adverse Effect.

l.Absence of Certain Company Control Person Actions or Events. To the Company’s knowledge, none of the following has occurred during the past five (5) years with respect to a Company Control Person:

(1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such Company Control Person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

(2) Such Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(3) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i) acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(4) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such Company Control Person to engage in any activity described in paragraph (3) of this item, or to be associated with Persons engaged in any such activity; or

(5) Such Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

m.No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the Transaction Agreements or the Company's SEC Documents or those incurred in the ordinary course of the Company's business since the Last Audited Date, or which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstance has occurred or exists with respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the Certificate of Incorporation or by-laws of the Company, each as currently in effect, with or without stockholder approval, which change would reduce or otherwise adversely affect the rights and powers of the stockholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company, including its interests in subsidiaries.

n.No Integrated Offering. Neither the Company nor any of its Affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time since August 1, 2006, made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

o.Dilution. Each of the Company and its executive officers and directors is aware that the number of shares issuable on conversion of the Debentures, upon exercise of the Warrants or pursuant to the other terms of the Transaction Agreements may have a dilutive effect on the ownership interests of the other stockholders (and Persons having the right to become stockholders) of the Company. The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures, the Warrant Shares upon exercise of the Warrants is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company, and the Company will honor such obligations, including honoring every Notice of Conversion (as contemplated by the Debentures) and every Notice of Exercise (as contemplated by the Warrants), unless the Company is subject to an injunction (which injunction was not sought by the Company) prohibiting the Company from doing so.

p.No Material Asset Security Interest. There are no Material Asset Security Interests.

q.Fees to Brokers, Placement Agents and Others. The Company has taken no action which would give rise to any claim by any Person for brokerage commission, placement agent or finder's fees or similar payments by Buyer relating to this Agreement or the transactions contemplated hereby. Notwithstanding the foregoing, the Company acknowledges that it has agreed to pay the Placement Agent’s Compensation (as defined in the Joint Escrow Instructions) to the Placement Agent in connection with the transactions contemplated hereby. Except for such fees arising as a result of any agreement or arrangement entered into by the Buyer without the knowledge of the Company (a “Buyer’s Fee”), Buyer shall have no obligation with respect to such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this paragraph that may be due in connection with the transactions contemplated hereby. The Company shall indemnify and hold harmless each of Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect of any such claimed or existing fees (other than a Buyer’s Fee).

r.Disclosure. All information relating to or concerning the Company set forth in the Transaction Agreements or in the Company’s public filings with the SEC is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or its business, properties, prospects, operations or financial conditions, which under applicable law, rule or regulation, requires public disclosure or announcement by the Company.

s.Confirmation. The Company agrees that, if, to the knowledge of the Company, any events occur or circumstances exist prior to the release of the Escrow Funds to the Company which would make any of the Company’s representations or warranties set forth herein materially untrue or materially inaccurate as of such date, the Company shall immediately notify the Buyer (directly or through the Placement Agent) and the Escrow Agent in writing prior to such date of such fact, specifying which representation, warranty or covenant is affected and the reasons therefor.

4.CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.Transfer Restrictions.

(i)The Buyer acknowledges that (1) the Securities have not been and are not being registered under the provisions of the 1933 Act and, except as provided in the Registration Rights Agreement or otherwise included in an effective registration statement, the Shares have not been and are not being registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (3) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.

(ii)In addition to the foregoing, and not in lieu thereof, the Buyer agrees that, without the express written consent of the Company in each instance, it will not transfer any of the Purchased Securities to any Person which is known to the Buyer to be in substantially the same business as the Company or which is known to be a subsidiary or affiliate of such a Person.

b.Restrictive Legend. The Buyer acknowledges and agrees that, until such time as the relevant Shares have been registered under the 1933 Act, as contemplated by the Registration Rights Agreement, and may be sold in accordance with an effective Registration Statement or otherwise in accordance with another effective registration statement, or until such Shares can otherwise be sold without restriction, whichever is earlier, the certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

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.

c.Filings. The Company undertakes and agrees to make all filings required to be made by it in connection with the sale of the Securities to the Buyer under the 1933 Act, the 1934 Act or the securities laws and regulations of any of the United States applicable to the Company or by the rules and regulations of the Principal Trading Market, and, unless such filing is publicly available on the SEC’s EDGAR system (via the SEC’s web site at no additional charge), to provide a copy thereof to the Buyer promptly after such filing. Reference is made to the Section titled “Publicity, Filings, Releases, Etc.” below.

d.Reporting Status. So long as the Buyer beneficially owns any of the Purchased Securities and for at least twenty (20) Trading Days thereafter, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. The Company will take all reasonable action under its control to maintain the continued listing and quotation and trading of its Common Stock (including, without limitation, all Registrable Securities) on the Principal Trading Market or a listing on the NASDAQ Capital or National Markets or AMEX and, to the extent applicable to it, will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the Principal Trading Market and/or the National Association of Securities Dealers, Inc., as the case may be, applicable to it at least through the date which is sixty (60) days after the later of the date on which (x) all of the Debentures have been converted or have been paid in full or (y) all of the Warrants have been exercised or have expired.

e.Use of Proceeds. The Company will use the net proceeds received hereunder (excluding amounts paid as contemplated by the Joint Escrow Instructions) as provided in Annex IX attached hereto (the “Use of Proceeds”). The Use of Proceeds provides, among other things, that such net proceeds on the Closing Date shall be used (i) first, for payment of certain fees and expenses; and (ii) then, for general corporate purposes; provided however, the Company will not use such to pay fees payable (x) to another broker or finder (other than the Placement Agent) relating to the offer and sale of the Purchased Securities or (y) to any other party relating to any financing transaction effected prior to the Closing Date.

f.Warrants.

(i)The Company agrees to issue to the Buyer on the Closing Date one or more transferable warrants (each, a "Warrant" and, collectively, the "Warrants"), designated as its Series 2007-01 Warrants. The Warrants to be issued to the Buyer shall be Class A or Class B Warrants,

as indicated on the Buyer’s signature page.

(ii)The Warrants issued to the Buyer shall be for the purchase of a number of shares of Common Stock equal to one hundred percent (100%) of the Issue Date Conversion Shares.

(iii)Each Warrant shall have an exercise price (each, an "Exercise Price") equal to $1.20; such Exercise Price will be subject to adjustment as provided in the Warrant.

(iv)Each of the Warrants shall be exercisable commencing on the Commencement Date specified in the Warrants. Each of the Warrants shall expire at the close of business on the last day of the calendar month in which the third annual anniversary of the Effective Date occurs

(v)Each Warrant shall have cashless exercise rights and automatic exercise provisions, each as provided in the Warrant. Except as specified above, each Warrant shall generally be in the form annexed hereto as Annex V-A or Annex V-B, as the case may be.

(vi)The Warrant Shares shall be subject to the relevant provisions of the Registration Rights Agreement.

g.Certain Agreements.

(i)For purposes of this Agreement, the following terms shall have meanings indicated:

(A)“New Transaction Period” means the period commencing on the Closing Date and continuing through and including the Final Lock-up Date.

(B)“Final Lock-up Date” means the date on which the aggregate principal amount of all outstanding Debentures is twenty-five percent (25%) or less of the Aggregate Purchase Price.

(C)“New Transaction Price” means the Basic New Transaction Price (as defined below) except that if the New Transaction Exercise Price is lower than the Basic New Transaction Price, it means the New Transaction Exercise Price.

(D)“Basic New Transaction Price” means, as may be applicable, on a per share basis, the lower of (1) the lowest fixed purchase price of any shares of the New Common Stock contemplated in the New Transaction, or (2) the lowest conversion price or put or call price which would be applicable under the terms of the New Transaction; in each such case, whether such purchase or conversion price or put or call price is stated or otherwise specified or is determined on the closing date of the New Transaction by the application of a formula set in the documents reflecting the New Transaction or does result from adjustments or revisions contemplated in the relevant agreements for the New Transaction (and the Company hereby covenants that it will provide written notice to the Buyer of any such adjustment or revision within five (5) Trading Days after an event reflecting such adjustment or revision and, if there was a conversion of any portion of the Buyer’s Debenture after such adjustment or revision and before Buyer’s receipt of such notice, the Company will issue additional shares to Buyer based on such adjusted conversion price) and whenever such adjustment or revision would be applicable (and if no minimum purchase price, conversion price or put or call price, as the case may be, is set, it shall be assumed that such minimum purchase price or conversion price is $.01); and provided, further, that, if the securities issued in the New Transaction are issued at a Face Value Discount (as defined below), the New Transaction Price shall be adjusted to reflect such discount.¹

(E)“Exercise Threshold Price” means the then applicable Exercise Price.

(F)“New Transaction Exercise Price” means the lowest exercise price per share applicable to the warrants, option or similar instrument (howsoever denominated; collectively, “New Transaction Warrants”) included in such New Transaction, whether such exercise price is stated or does result from adjustments or revisions contemplated in the relevant agreements for the New Transaction (and the Company hereby covenants that it will provide written notice to the Buyer of any such adjustment or revision within five (5) Trading Days after an event reflecting such adjustment or revision and, if there was an exercise of any portion of the Buyer’s Warrant after such adjustment or revision and before Buyer’s receipt of such notice, the Company will issue additional shares to Buyer based on such adjusted exercise price) and whenever such exercise price would be applicable (and, if no minimum exercise price is set, it shall be assumed that such minimum exercise price is $.01).

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¹By way of illustration, if convertible preferred shares having a stated value of $1 million and a fixed conversion price of $0.05 were sold for a purchase price of $800,000, the effective New Transaction Price would be $0.04.

(G)“Alternative Warrant Percentage” means, with respect to the relevant New Transaction, (1) the number of shares which are eligible to be purchased under the New Transaction Warrants, divided by (2) the aggregate of the shares of New Common Stock issued or issuable in such transaction (excluding the shares issuable on exercise of the New Transaction Warrants).

(H)“Current Warrant Percentage” means, as of immediately before the consummation of the relevant New Transaction, the higher of (1) one hundred percent (100%) or (2) the highest Alternative Warrant Percentage of any preceding New Transaction.

(I)“Outstanding Warrant Shares” means, for the Warrants or for any previously issued Added Warrants, the then outstanding number of Warrant Shares which would then be issuable upon the exercise in full of such Warrants (without regard to any limitations which may then restrict the Holder’s full exercise of such Warrant at any time) or such Added Warrants, if any, as in effect immediately prior to the relevant New Transaction.

(J)“Original Warrant Shares” means, for the Warrants or for any previously issued Added Warrants, the original number of Warrant Shares issuable on exercise of such Warrants on the relevant Closing Date or as Added Warrants, as the case may be (in each case without regard to any limitations which may then restrict the Holder’s full exercise of such Warrant at any time).

(K)“Face Value Discount” means consideration less than, as the case may be, (x) the number of shares being issued multiplied by the stated purchase price, (y) the stated principal amount of a debenture, note or similar instrument or (z) the stated value of the shares of convertible stock.

(ii) The Company covenants and agrees that, if, during the New Transaction Period, without the prior written consent of a Majority in Interest of the Holders in each instance (which consent is in the sole discretion of the Holders and may be withheld for any reason or for no reason whatsoever), the Company enters into a New Transaction, then

(A)the New Transaction Price shall be deemed to be the “Lowest Fixed Conversion Price” for purposes of clause (y) of the definition of “Conversion Price” in the Debentures for all Unconverted Debentures; provided, however, if there was one or more previous New Transactions, the Lowest Fixed Conversion Price shall be the lowest New Transaction Price² of all New Transactions; and

(B)if the New Transaction Exercise Price of any of the New Transaction Warrants is lower than the Exercise Threshold Price of the Warrants, then the Exercise Price of the then outstanding Warrants shall be adjusted to be equal to the New Transaction Exercise Price of such New Transaction Warrants; and

(C)if the provisions applicable to the convertible preferred stock, convertible debenture or similar instrument (howsoever denominated), if any, of the New Transaction are more beneficial to the holder of such instrument than the corresponding terms applicable to the Debentures or in or to the Warrants, as the case may be, or if the terms which are beneficial to the Company in the relevant Transaction Agreements are not included in the corresponding instrument in the New Transaction, then, unless waived by a Majority in Interest of the Holders, the terms of the Transaction Agreements applying to the then outstanding Debentures or the Warrants or to the other Transaction Agreements, as the case may be, shall be modified to reflect similar terms (based, if relevant, on the Closing Date); provided, however, that nothing in this provision shall be read to mean that the Purchased Securities shall be changed to any other form of security;

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²Any New Transaction Price shall be adjusted for subsequent events as contemplated by the Debentures.

(D)if either (1) the Conversion Price is adjusted as contemplated by clause (A) above, and/or (2) the Alternative Warrant Percentage is greater than the Current Warrant Percentage (whether or not the Conversion Price has been adjusted as a result of the New Transaction), the Company shall issue to the Holder additional warrants (“Added Warrants”) for the purchase of the number of shares equal to the excess, if any, of

(x) (I) the higher of (a) the Alternative Warrant Percentage or (b) the Current Warrant Percentage, multiplied by (II) (a) the Purchase Price, divided by (b) the Conversion Price as determined on the Closing Date, multiplied by (III) a fraction, of which the numerator is the Outstanding Warrant Shares for all Warrants (including previously issued Added Warrants) and the denominator is Original Warrant Shares for all Warrants (including previously issued Added Warrants); over

(y) the aggregate Outstanding Warrant Shares for all Warrants (including previously issued Added Warrants);

the terms of such Added Warrants (including, but not limited, to term of exercisability, exercise price, manner and limitations, if any, on exercise, registration rights) shall be the same as the shall be the same as the applicable New Transaction Warrants issued in such New Transaction.

(iii)The Company covenants and agrees that, any of the foregoing provisions of this Section 4(g) or any other provision of this Agreement or any of the other Transaction Agreements to the contrary notwithstanding, the Company will not, without the prior written consent of a Majority in Interest of the Holders in each instance (which consent is in the sole discretion of the Holders and may be withheld for any reason or for no reason whatsoever),

(A)during the New Transaction Period, enter into any New Transaction where such transaction provides for a variable conversion price or a variable exercise price; provided, however, that this Section 4(g)(iii)(A) shall not apply to

(1) a provision in a debenture, preferred equity security or similar instrument-based financing (howsoever denominated; a “New Debenture”) representing an obligation to repay the amount loaned or advanced by a New Investor to the Company in a New Transaction and represented by the New Debenture (the “New Debenture Original Principal”) which provides that (i) the Company shall be obligated to repay on a monthly or less frequent basis, beginning no earlier than three months after the issuance of the New Debenture, a fixed amount of the New Debenture Original Principal (not to exceed 4.77% per month of such New Debenture Original Principal), together with all accrued interest due and payable thereon and (ii) if such required periodic payment may be paid in shares of Common Stock, the number of shares to be issued pursuant to such provision shall be based on (x) the VWAP for at least the five (5) Regular Trading Days prior to the relevant scheduled payment date, multiplied by (y) a percentage no lower than seventy percent (70%); or

(2) a New Transaction which meets all of the following conditions: (i) the New Transaction is not entered into prior to date which is thirty (30) days after the earlier of (x) the Effective Date covering all of the Registrable Securities or (y) the Initial Default Effective Date (as defined in the Debenture), (ii) no later than the Trading Day after the execution of the New Transaction, the Company gives a Voluntary Prepayment Notice (as defined in the Debenture) for all, and not less than all, of the outstanding Debentures of all Buyers and all of the other terms and conditions of such prepayment of the Debentures, as provided in Section 4(F) of the Debenture,³ are satisfied, and (iii) the documents reflecting such New Transaction specify that consummation of the transaction contemplated by such documents is expressly conditioned on the completion of the prepayment on all outstanding Debentures,

(B)during the period commencing on the Closing Date and continuing through the Effective Date, enter into any New Transaction whatsoever, and

(C)during the period commencing on the Effective Date and continuing through the date which is the six month anniversary of the Effective Date, enter into any New Transaction where such New Transaction provides for any registration rights (including, but not limited to demand or piggy-back registration rights) to any one or more of the New Investors in such New Transaction.

The Company acknowledges that each of the foregoing provisions is independent of the others and that a breach of any of the foregoing provisions might result in adjustments referred to in other provisions of this Section 4(g) and, in addition (and not in lieu of such adjustments, if any) shall constitute an event of default under the Debenture and the other Transaction Agreements. The Company is aware that if such event of default occurs, a Holder of a Debenture will have certain redemption rights contemplated by the Debenture.

(iv)Nothing in the foregoing provisions reflects either an obligation on the part of any Buyer to participate in any New Transaction or a limitation on any Buyer from participating in any New Transaction.

(v)Any of the foregoing provisions of this Section 4(g) or any other provision of this Agreement or any of the other Transaction Agreements to the contrary notwithstanding, the Company shall not engage in any offers, sales or other transactions of its securities which would adversely affect the exemption from registration available for the transactions contemplated by the Transaction Agreements.

(vi)The Company agrees that, prior to the Effective Date, it will not file any registration statement for the sale of shares by the Company or any other stockholder other than the Registration Statement contemplated by the Registration Rights Agreement (or amendments to such Registration Statement) and other than (x) a registration statement on Form S-8 (and any post-effective amendments thereto) and (y) a post-effective registration statement with respect to any registration statement which was declared effective prior to the Closing Date.

h.Company Principal’s Agreements.

_________________

³Such terms and conditions include, but are not necessarily limited to: the conditions which must be satisfied for the Company to give a Voluntary Prepayment Notice; the terms of the Voluntary Prepayment Notice; the satisfaction of all conditions through and including the Voluntary Prepayment Date (as defined in the Debenture); the rights of the Holder of a Debenture during the Prepayment Conversion Period (as defined in the Debenture); and the payment in full of the relevant Voluntary Prepayment Amount, as defined in and subject to the terms of the Debenture, to all Holders of Debentures on the Voluntary Prepayment Date.)

(i)The Company hereby agrees that, no later than the Closing Date, the Company will cause each of its principal officers and all of its directors and certain persons set forth on Schedule 4(h) of the Company Disclosure (each, a “Company Principal”), and certain Persons who are related to or controlled by such Company Principal, to execute and deliver an agreement (each, a “Company Principal’s Agreement”) regarding limitations on the sale or other disposition of the shares of the Company’s Common Stock (or instruments convertible into or exercisable for such shares) held by such Company Principal or other Principal (as defined in the Company Principal’s Agreement), except that, notwithstanding its terms, the Company Principal’s Agreement will be deemed not apply to the sale of shares of Common Stock acquired by a Principal in open market transactions or from any other Person who was not bound by a Company Principal’s Agreement at the time of such acquisition by such Principal. Subject to the foregoing, each Company Principal’s Agreement shall be substantially in the form set forth in Annex VII attached hereto.

(ii)In addition, under certain circumstances as contemplated by the definition of “New Transaction” in this Agreement, certain future issuances by the Company to persons identified in clause (f) of such definition are conditioned on such shares being subject to a Company Principal’s Agreement being executed by the relevant party (who, whether or not included in the definition of Company Principal in the preceding subparagraph (i), shall, for purposes of this Section 4(h), be deemed to be a “Company Principal” identified in such definition). The Company covenants that it will obtain such executed Company Principal’s Agreement from the relevant party no later than the issuance of the relevant security to such party and that it will promptly provide a copy thereof to the Escrow Agent on behalf of the Buyer and the Other Buyers.

i.Available Shares.

(i)The Company shall have at all times authorized and reserved for issuance, free from preemptive rights, a number of shares (the “Reserved Amount”) at least equal to one hundred percent (100%) of the sum of (x) the number of shares of Common Stock issuable as may be required, at any time, to satisfy the conversion rights of the Holders of principal on all outstanding Convertible Debentures plus interest thereon through the Maturity Date (assuming for such purposes that interest is paid in shares at the Conversion Price), plus (y) the number of shares issuable upon exercise of all outstanding Warrants held by all Holders (in each case, whether any of such outstanding Convertible Debentures or Warrants were originally issued to the Holder, the Buyer or to any other party and without regard to any restrictions which might limit any Holder’s right to convert any of the Debentures or to exercise any of the Warrants held by any Holder).

(ii)The Reserved Amount shall be determined on the Closing Date and after each New Transaction Closing Date, and thereafter on the first Trading Day after the end of each subsequent calendar quarter, and the number of shares to be reserved shall be based on (q) all outstanding Debentures and the Conversion Price which would have been applicable as of such date and (r) all unexercised Warrants as of such date. The Reserved Amount determined on such date shall remain the Reserved Amount until the next New Transaction Closing Date or quarterly determination, as the case may be. The Company shall give written instructions to the Transfer Agent to reserve for issuance to the Buyer the number of shares equal to the Reserved Amount. The Company will, at the request of the Buyer (which request shall not be made more frequently than twice a year), provide written confirmation, certified by an executive officer of the Company, of the number of shares then reserved for the Buyer and that the instructions referred to in the preceding sentence have been given to the Transfer Agent.

j.Publicity, Filings, Releases, Etc. Each of the parties agrees that it will not disseminate any information relating to the Transaction Agreements or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other forums, or filing any reports (collectively, “Publicity”), without giving the other party reasonable advance notice and an opportunity to comment on the contents thereof. Neither party will include in any such Publicity any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included. In furtherance of the foregoing, the Company will provide to the Investor’s Counsel (as defined in the Registration Rights Agreement) drafts of the applicable text the first or initial filing of a Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K (or equivalent SB forms), as the case may be, intended to be made with the SEC which refers to the Transaction Agreements or the transactions contemplated thereby as soon as practicable (but at least two (2) Trading Days before such filing will be made) and will not include in such filing (or any other filing filed before then) any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included. Notwithstanding the foregoing, each of the parties hereby consents to the inclusion of the text of the Transaction Agreements in filings made with the SEC (but any descriptive text accompanying or part of such filing shall be subject to the other provisions of this paragraph). Notwithstanding, but subject to, the foregoing provisions of this Section 4(j), the Company will, after the Closing Date, promptly issue a press release and file a Current Report on Form 8-K or, if appropriate, a quarterly or annual report on the appropriate form, referring to the transactions contemplated by the Transaction Agreements.

k.Independent Nature of Buyers' Obligations and Rights. The obligations of each Buyer under the Transaction Agreements are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any Other Buyer under any one or more of the Transaction Agreements. The decision of each Buyer or Other Buyer to purchase Purchased Securities pursuant to the Transaction Agreements has been made by such Buyer independently of any Other Buyer and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its subsidiaries, if any, which may been made or given by any Other Buyer or any of their respective officers, directors, principals, employees, agents, counsel or representatives (collectively, including the Buyer, the “Buyer Representatives”). No Buyer Representative shall have any liability to any Other Buyer or the Company relating to or arising from any such information, materials, statements or opinions, if any. Each Buyer acknowledges that no Other Buyer has acted as agent for such Buyer in connection with making its investment hereunder and that no Buyer will be acting as agent of such Other Buyer in connection with monitoring its investment in the Purchased Securities or enforcing its rights under the Transaction Agreements. Each Buyer shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Agreements, and it shall not be necessary for any Other Buyer to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that, for reasons of administrative convenience, (x) the Transaction Agreements have been prepared by counsel for one of the Buyers and such counsel does not represent all of the Buyers with respect to the transactions contemplated hereby, and each other Buyer has retained its own counsel (or had the opportunity to do so) with respect to such transactions, and (y) the Company has elected to provide each of the Buyers with the same Transaction Agreements for the purpose of closing a transaction with multiple Buyers and not because it was required or requested to do so by any Buyer. In furtherance of the foregoing, and not in limitation thereof, the Company acknowledges that nothing contained in this Agreement or in any Transaction Agreement, and no action taken by any Buyer pursuant thereto, shall be deemed to constitute any two or more Buyers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Agreements.

l.Equal Treatment of Buyers. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements unless the same consideration is also offered to all of the parties to the Transaction Agreements.

m.Trading Provisions. The Buyer agrees that, during the period from the date hereof until the date the Buyer’s own Debenture is fully paid or converted and the Buyer’s own Warrants have been exercised in full or have expired, neither the Buyer nor any of the Buyer’s Affiliates shall engage in any Short Sales of the Common Stock; provided, however, that unless and until the Company has (x) affirmatively demonstrated by the use of specific clear and convincing evidence that Buyer is engaging in Short Sales and (y) obtained an injunction to that effect against the Buyer from a court of competent jurisdiction, the Buyer shall be assumed to be in compliance with the provisions of this Section 4(m) and the Company shall remain obligated to fulfill all of its obligations under the Transaction Agreements; and provided, further, that the Company shall under no circumstances be entitled to request or demand that the Buyer affirmatively demonstrate that it has not engaged in any such Short Sales as a condition to the Company’s fulfillment of its obligations under any of the Transaction Agreements and shall not assert the Buyer’s failure to demonstrate such absence of such Short Sales as a defense to any breach of the Company’s obligations under any of the Transaction Agreements.

n.Independent Investment Decision. No Buyer has agreed to act with any Other Buyer for the purpose of acquiring, holding, voting or disposing of the Securities purchased hereunder for purposes of Section 13(d) under the Exchange Act, and each Buyer is acting independently with respect to its investment in the Securities. The decision of each Buyer to purchase Purchased Securities pursuant to this Agreement has been made by such Buyer independently of any other purchase and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or its subsidiaries which may have made or given by any Other Buyer or by any agent or employee of any Other Buyer, and no Buyer or any of its agents or employees shall have any liability to any Other Buyer (or any other person) relating to or arising from any such information, materials, statements or opinions.

o. NASD Rule 2710. The Company is aware that the Corporate Financing Rule 2710 (“NASD Rule 2710") of the National Association of Securities Dealers (“NASD”) is or may become applicable to the transactions contemplated by the Transaction Agreements or to the sale by a Holder of any of the Securities. If NASD Rule 2710 is so applicable, the Company shall, to the extent required by such rule, timely make any filings and cooperate with any broker or selling stockholder in respect of any consents, authorizations or approvals that may be necessary for the NASD to timely and expeditiously permit the stockholder to sell the securities.

p.Keeping of Records and Books of Account. The Company shall keep and cause each Subsidiary, if any, to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and such subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

q.Covenant Not to Grant Material Asset Security Interests. The Company agrees, for itself and for each Subsidiary, that, as long as any of the Debentures are outstanding, without the prior written consent of a Majority in Interest of the Holders in each instance (which consent is in the sole discretion of the Holders and may be withheld for any reason or for no reason whatsoever), no Material Asset Security Interest will be granted by the Company or any Subsidiary or permitted to exist.

5.TRANSFER AGENT INSTRUCTIONS.

a.The Company warrants that, with respect to the Securities, other than the stop transfer instructions to give effect to Section 4(a) hereof, it will give the Transfer Agent no instructions inconsistent with instructions to issue Common Stock from time to time upon conversion of the Debentures or exercise of the Warrants, as may be applicable from time to time, in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section 4(b) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Buyer or its nominee and in such denominations to be specified by the Holder in connection therewith. Except as so provided, the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Agreements. Nothing in this Section shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act or upon request from a Holder while the Registration Statement is effective, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer of the Securities and, in the case of the Conversion Shares or the Warrant Shares, as may be applicable, promptly instruct the Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.

b.(i)The Company understands that a delay in the delivery of Conversion Certificates, whether on conversion of the Debenture and/or in payment of accrued interest or on exercise of the Warrants, beyond the relevant Delivery Date (as defined in the Debenture or Warrant, as the case may be) could result in economic loss to the Holder. As compensation to the Holder for such loss, in addition to any other available remedies at law, the Company agrees to pay late payments to the Holder for late issuance of the Conversion Certificates in accordance with the following schedule (where “No. Business Days Late” is defined as the number of Trading Days beyond two (2) Trading Days after the Delivery Date):

	Late Payment For Each $10,000
	of Principal or Interest Being Converted or
No. Business Days Late	of Exercise Price of Warrant Being Exercised
1	$	100
2	$	200
3	$	300
4	$	400
5	$	500
6	$	600
7	$	700
8	$	800
9	$	900
10	$	1,000
>10	$	1,000 + $200 for each Business Day Late beyond 10 days

The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the Holder’s right to pursue actual damages for the Company’s failure to issue and deliver the Conversion Certificates to the Holder within a reasonable time. Furthermore, in addition to any other remedies which may be available to a Holder, in the event that the Company fails for any reason to effect delivery of such Conversion Certificates within two (2) Trading Days after the Delivery Date, the Converting Holder will be entitled to revoke the relevant Notice of Conversion or Notice of Exercise by delivering a notice to such effect to the Company prior to the Converting Holder’s receipt of the relevant Conversion Certificates, whereupon the Company and the Converting Holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise, as the case may be; provided, however, that any payments contemplated by this Section 5(b) of this Agreement which have accrued through the date of such revocation notice shall remain due and owing to the Converting Holder notwithstanding such revocation.

________________________

^{4  Example: Notice of Conversion or Notice of Exercise is delivered on Monday, December 3, 2007. The Delivery Date would be Thursday, December 6 (the third Trading Day after such delivery). If the certificate is delivered by Monday, December 10 (2 Trading Days after the Delivery Date), no payment under this provision is due. If the certificates are delivered on December 11, that is 1 “Trading Day Late” in the table below; if delivered on December 18, that is 6 “Trading Days Late” in the table.}

(ii)If, by the tenth Trading Day after the relevant Delivery Date, the Company fails for any reason to deliver the Conversion Certificates, but at any time after the Delivery Date, the Converting Holder purchases, in an arm’s-length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make using the shares to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right to require the Company to pay to the Converting Holder, in addition to and not in lieu of the amounts contemplated in other provisions of the Transaction Agreements, including, but not limited to, the provisions of the immediately preceding Section 5(b)(i)), the Buy-In Adjustment Amount (as defined below). The “Buy-In Adjustment Amount” is the amount equal to the number of Sold Shares multiplied by the excess, if any, of (x) the Holder's total purchase price per share (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds per share (after brokerage commissions, if any) received by the Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Holder will be $1,000.

c.The provisions of this paragraph apply on or after the Effective Date and only so long as the effectiveness of the applicable registration has not been suspected or withdrawn or if the provisions of Rule 144(k) would then be applicable to the sale of the relevant Shares by the Holder (collectively, the “Effective Period”). During the Effective Period, the Company will issue Shares without legend and without transfer restrictions on the books of the Transfer Agent, and, at the request of the Holder, will use it best efforts to have previously issued certificates representing the Shares re-issued without legend and without transfer restrictions on the books of the Transfer Agent. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion of the Debenture or exercise of a Warrant or at the request of the Holder with respect to any Shares previously issued, provided the Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Holder and the Holder’s compliance with the provisions contained in this paragraph, so long as the certificates therefor do not bear a legend and the Holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause the Transfer Agent to electronically transmit to the Holder the Common Stock issuable upon conversion of the Debenture or exercise of the Warrant or in replacement of any Shares previously issued by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. The Company specifically acknowledges that, as of the date hereof and as of the Closing Date, the Transfer Agent is participating in the DTC program and the Company is not aware of any plans of the Transfer Agent to terminate such participation. While any Holder holds Registrable Securities, the Company will not appoint any transfer agent which does not participate in the DTC program.

d. The Company shall assume any fees or charges of the Transfer Agent or Company counsel regarding (i) the removal of a legend or stop transfer instructions with respect to Registrable Securities, and (ii) the issuance of certificates or DTC registration to or in the name of the Holder or the Holder’s designee or to a transferee as contemplated by an effective Registration Statement. Notwithstanding the foregoing, it shall be the Holder’s responsibility to obtain all needed formal requirements (specifically: medallion guarantee and prospectus delivery compliance) in connection with any electronic issuance of shares of Common Stock.

e.The Holder of a Debenture or a Warrant shall be entitled to exercise its conversion or exercise privilege with respect to the Debenture or the Warrant, as the case may be, notwithstanding the commencement of any case under 11 U.S.C. Sec.101 etseq. (the “Bankruptcy Code”). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. Sec.362 in respect of such holder’s exercise privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. Sec.362 in respect of the conversion of the Debenture or the exercise of the Warrant. The Company agrees, without cost or expense to such Holder, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. Sec.362.

f.The Company will authorize the Transfer Agent to give information relating to the Company directly to the Holder or the Holder’s representatives upon the request of the Buyer or any such representative, to the extent such information relates to (i) the status of shares of Common Stock issued or claimed to be issued to the Holder in connection with a Notice of Conversion or a Notice of Exercise, or (ii) the aggregate number of outstanding shares of Common Stock of all stockholders (as a group and not individually) as of a current or other specified date. At the request of the Holder, the Company will provide the Holder with a copy of the authorization so given to the Transfer Agent.

6.CLOSING DATE.

a. The Closing Date shall occur on the date which is the first Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.

b.The closing of the purchase and issuance of Debentures and Warrants shall occur on the Closing Date at the offices of the Escrow Agent.

c.Notwithstanding anything to the contrary contained herein, on the Closing Date, the Escrow Agent will be authorized to release the Escrow Agent will be authorized to release the Escrow Property on the Closing Date as provided in the Joint Escrow Instructions.

7.CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The Buyer understands that the Company's obligation to sell the Purchased Securities to the Buyer pursuant to this Agreement on the Closing Date is conditioned upon:

a.The execution and delivery of this Agreement and the other Transaction Agreements by the Buyer on or before such Closing Date;

b.Delivery by the Buyer to the Escrow Agent by the Closing Date of good funds as payment in full of an amount equal to the Purchase Price in accordance with this Agreement;

c.The accuracy on such Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

d.There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

8.CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

The Company understands that the Buyer's obligation to purchase the Purchased Securities on the Closing Date is conditioned upon:

a.The execution and delivery of this Agreement and the other Transaction Agreements by the Company on or before such Closing Date;

b.The delivery by the Company to the Escrow Agent of the Certificates in accordance with this Agreement;

c.The delivery by the Company to the Escrow Agent on or before the Closing Date of the executed Company Principal’s Agreements from each Company Principal and the related Principals (as defined in each Company Principal’s Agreement) of such Company Principal;

d.The Company shall have delivered to the Buyer copies of all requisite third party consents and/or waivers described in the Disclosure Annex;

e.On such Closing Date, each of the Transaction Agreements executed by the Company on or before such date shall be in full force and effect and the Company shall not be in default thereunder;

f.The accuracy in all material respects on such Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

g.The delivery to the Escrow Agent of an opinion of counsel for the Company, dated such Closing Date, addressed to the Buyer and the Other Buyers and to the Placement Agent, in form, scope and substance reasonably satisfactory to the Buyer and the Placement Agent, substantially to the effect set forth in Annex III attached hereto;

h.There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

i.From and after the date hereof to and including such Closing Date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii), no minimum prices shall been established for securities traded on the Principal Trading Market; and (iv) there shall not have been any material adverse change in any financial market.

9.INDEMNIFICATION AND REIMBURSEMENT.

a. (i) The Company agrees to indemnify and hold harmless the Buyer and its officers, directors, employees, and agents, and each Buyer Control Person from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “Damages”), joint or several, and any action in respect thereof to which the Buyer, its partners, Affiliates, officers, directors, employees, and duly authorized agents, and any such Buyer Control Person becomes subject to, resulting from, arising out of or relating to any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Company contained in this Agreement, as such Damages are incurred, except to the extent such Damages result primarily from Buyer's failure to perform any covenant or agreement contained in this Agreement or the Buyer's or its officer’s, director’s, employee’s, agent’s or Buyer Control Person’s illegal or willful misconduct, gross negligence, recklessness or bad faith (in each case, as determined by a non-appealable judgment to such effect) in performing its obligations under this Agreement.

(ii)The Company hereby agrees that, if the Buyer, other than by reason of its gross negligence or willful misconduct or by reason of its trading of the Common Stock in a manner that is illegal under the United States federal securities laws (in each case, as determined by a non-appealable judgment to such effect), (x) becomes involved in any capacity in any action, proceeding or investigation brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or if the Buyer is impleaded in any such action, proceeding or investigation by any Person, or (y) becomes involved in any capacity in any action, proceeding or investigation brought by the SEC, any self-regulatory organization or other body having jurisdiction, against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or (z) is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall indemnify, defend and hold harmless the Buyer from and against and in respect of all losses, claims, liabilities, damages or expenses resulting from, imposed upon or incurred by the Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. The indemnification and reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Buyer who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and Buyer Control Persons (if any), as the case may be, of the Buyer and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Buyer, any such Affiliate and any such Person.

b.All claims for indemnification by any Indemnified Party (as defined below) under this Section shall be asserted and resolved as follows. In the event any claim or demand in respect of which any Person claiming indemnification under any provision of this Section (an “Indemnified Party”) might seek indemnity under paragraph (a) of this Section is asserted against or sought to be collected from such Indemnified Party by a Person other than a party hereto or an Affiliate thereof (a “Third Party Claim”), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of this Section against any Person (the “Indemnifying Party”), together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the “Dispute Period”) whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under this Section and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim. The following provisions shall also apply.

(i) If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this paragraph (b) of this Section, then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party, which consent shall not be unreasonably withheld [it being understood that the withholding of consent to any such settlement which contemplates a payment by the Indemnified Party, the admission of any liability by the Indemnified Party or any future restrictions or limitations on the Indemnified Party will be considered reasonable], in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to paragraph (a) of this Section). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this subparagraph (x), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this subparagraph (i), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may take over the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under paragraph (a) of this Section with respect to such Third Party Claim.

(ii) If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, each in a reasonable manner, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party (with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this subparagraph (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in subparagraph (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this subparagraph (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this subparagraph (ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.

(iii) If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under paragraph (a) of this Section or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed a liability of the Indemnifying Party under paragraph (a) of this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

c.The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to.

10.JURY TRIAL WAIVER. The Company and the Buyer 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 or in connection with the Transaction Agreements.

11.SPECIFIC PERFORMANCE. The Company and the Buyer acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement or any of the other Transaction Agreements were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties (including any Holder) shall be entitled to an injunction or injunctions, without (except as specified below) the necessity to post a bond, to prevent or cure breaches of the provisions of this Agreement or such other Transaction Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity; provided, however that the Company, upon receipt of a Notice of Conversion or a Notice of Exercise, may not fail or refuse to deliver the stock certificates and the related legal opinions, if any, or if there is a claim for a breach by the Company of any other provision of this Agreement or any of the other Transaction Agreements, the Company shall not raise as a legal defense, based on any claim that the Holder or anyone associated or affiliated with the Holder has violated any provision hereof or any other Transaction Agreement, has engaged in any violation of law or for any other reason, unless the Company has first posted a bond for one hundred fifty percent (150%) of the principal amount and, if relevant, then obtained a court order specifically directing it not to deliver said stock certificates to the Holder. The proceeds of such bond shall be payable to the Holder to the extent that the Holder obtains judgment or its defense is recognized. Such bond shall remain in effect until the completion of the relevant proceeding and, if the Holder appeals therefrom, until all such appeals are exhausted. This provision is deemed incorporated by reference into each of the Transaction Agreements as if set forth therein in full.

12.GOVERNING LAW: MISCELLANEOUS.

a.This Agreement shall be governed by and interpreted 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 Agreement or any of the other Transaction Agreements and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. To the extent determined by such court, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Agreements. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

b.Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

c.This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

d.All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

e.A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.

f.This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

g.The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

h.If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

i.This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

j.This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

k.All dollar amounts referred to or contemplated by this Agreement or any other Transaction Agreement shall be deemed to refer to US Dollars, unless otherwise explicitly stated to the contrary.

13.NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of

(a) the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

(b) the fifth Trading Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

(c) the third Trading Day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

COMPANY: At the address set forth at the head of this Agreement.

Attn: CEO/Chairman

Telephone No.: (011-86-29) 8819-3188

Telecopier No.: (011-86-29) 8819-3185

with a copy to:

Richardson & Patel LLP

Attn: Kevin K. Leung, Esq.

10900 Wilshire Blvd., Suite 500

Los Angeles, California 90024

Telephone No.: (310) 208-1182

Telecopier No.: (310) 208-1154

BUYER: At the address set forth on the signature page of this Agreement.

with a copy to:

Krieger & Prager llp, Esqs.

39 Broadway

Suite 1440

New York, NY 10006

Attn: Ronald J. Nussbaum, Esq.

Telephone No.: (212) 363-2900

Telecopier No. (212) 363-2999

ESCROW AGENT: Krieger & Prager llp, Esqs.

39 Broadway

Suite 1440

New York, NY 10006

Attn: Samuel Krieger, Esq.

Telephone No.: (212) 363-2900

Telecopier No. (212) 363-2999

14.SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the Buyer’s representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Certificates and the payment of the Purchase Price, for a period of two (2) years after the Closing Date and shall inure to the benefit of the Buyer and the Company and their respective successors and assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]

IN WITNESS WHEREOF, with respect to the Purchase Price specified below for the Class of Debentures and Warrants specified below, each the undersigned represents that the foregoing statements made by it above are true and correct and that it has caused this Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized) as of the date first above written.

PURCHASE PRICE:	$________________________
for the purchase of [check one:]
o Class A Debentures and Class A Warrants	o Class B Debentures and Class B Warrants

BUYER:

Address	Printed Name of Buyer
	By:
Telecopier No.		(Signature of Authorized Person)
		Printed Name and Title
Jurisdiction of Incorporation or Organization
If the above Notice Address is not the Residence (for individual Buyer) or Principal Place of Business (for Buyer which is not an individual), such Residence or Principal Place of Business is:

COMPANY:

SKYSTAR BIO-PHARMACEUTICAL COMPANY

By: 

Title: 

ANNEX I		FORM OF DEBENTURE
	-A	Class A
	-B	Class B
ANNEX II		JOINT ESCROW INSTRUCTIONS
ANNEX III		OPINION OF COUNSEL
ANNEX IV		REGISTRATION RIGHTS AGREEMENT
ANNEX V		FORM OF WARRANT
	-A	Class A
	-B	Class B
ANNEX VI		COMPANY’S SEC DOCUMENTS AVAILABLE ON EDGAR
ANNEX VII		COMPANY PRINCIPAL’S AGREEMENT
ANNEX VIII		COMPANY DISCLOSURE
ANNEX IX		USE OF PROCEEDS
ANNEX X		PURCHASE PRICE WIRE INSTRUCTIONS

EX-10.2

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 AddressConversion 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.

EX-10.3

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 AddressConversion 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

EX-10.4

FORM OF WARRANT

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

SKYSTAR BIO-PHARMACEUTICAL COMPANY

COMMON STOCK PURCHASE WARRANT

SERIES 2007-01

1.Issuance. In consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by SKYSTAR BIO-PHARMACEUTICAL COMPANY, a Nevada corporation (the “Company”), _____________________________ or registered assigns (the “Holder”) is hereby granted the right to purchase at any time, on or after the Commencement Date (as defined below) until 5:00 P.M., New York City time, on the Expiration Date (as defined below), _________________ Thousand __________ (____________)² fully paid and nonassessable shares of the Company’s Common Stock, $0.001 par value per share (the “Common Stock”), at an initial exercise price per share (the “Exercise Price”) of $1.20 per share, subject to further adjustment as set forth herein. This Warrant is being issued pursuant to the terms of that certain Securities Purchase Agreement, dated as of February 26, 2007 (the “Securities Purchase Agreement”), to which the Company and Holder (or 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 Warrant was originally issued to the Holder of the Holder’s predecessor in interest on _____________, 2007³ (the “Issue Date”).

____________________

¹Insert unique sequential number for each Warrant.

²Insert number equal to Buyer’s Issue Date Conversion Shares for the Closing Date.

2.Exercise of Warrants.

2.1General.

(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Commencement Date (as defined below). Such exercise shall be effectuated by submitting to the Company (either by delivery to the Company or by facsimile transmission as provided in Section 8 hereof) a completed and duly executed Notice of Exercise (substantially in the form attached to this Warrant Certificate) as provided in the Notice of Exercise (or revised by notice given by the Company as contemplated by the Section headed “NOTICES” in the Securities Purchase Agreement). The date such Notice of Exercise is faxed to the Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, the Holder of this Warrant tenders this Warrant Certificate to the Company within five (5) Trading Days thereafter. The Notice of Exercise shall be executed by the Holder of this Warrant and shall indicate (i) the number of shares then being purchased pursuant to such exercise and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.

(b) The provisions of this Section 2.1(b) shall only be applicable (i) (x) on or after the first anniversary of the Issue Date, and (y) if, and only if, on the Exercise Date there is no effective Registration Statement covering the Warrant Shares (other than during a Permitted Suspension Period, as defined in the Registration Rights Agreement), and (ii) on the Automatic Exercise Date (as defined below), even if there is an effective Registration Statement covering the Warrant Shares on such date. If the Notice of Exercise form elects a “cashless” exercise, the Holder shall thereby be entitled to receive a number of shares of Common Stock equal to (w) the excess of the Current Market Value (as defined below) over the total cash exercise price of the portion of the Warrant then being exercised, divided by (x) the Market Price of the Common Stock. For the purposes of this Warrant, the terms (y) “Current Market Value” shall mean an amount equal to the Market Price of the Common Stock, multiplied by the number of shares of Common Stock specified in the applicable Notice of Exercise, and (z) “Market Price of the Common Stock” shall mean the average Closing Price of the Common Stock for the three (3) Trading Days ending on the Trading Day immediately prior to the Exercise Date.

(c) If the Holder provides on the Notice of Exercise form that the Holder has elected a “cash” exercise (or if the cashless exercise referred to in the immediately preceding paragraph (b) is not available in accordance with its terms), the Exercise Price per share of Common Stock for the shares then being exercised shall be payable, at the election of the Holder, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by the Company at the request of the Holder.

____________________

³Insert the Closing Date.

(d) Upon the appropriate payment, if any, of the Exercise Price for the shares of Common Stock purchased, together with the surrender of this Warrant Certificate (if required), the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The Company shall deliver such certificates representing the Warrant Shares in accordance with the instructions of the Holder as provided in the Notice of Exercise (the certificates delivered in such manner, the “Warrant Share Certificates”) within three (3) Trading Days (such third Trading Day, a “Delivery Date”) of (i) with respect to a “cashless exercise,” the Exercise Date or the Automatic Exercise Date, as the case may be, or, (ii) with respect to a “cash” exercise, the later of the Exercise Date or the date the payment of the Exercise Price for the relevant Warrant Shares is received by the Company.

(e) The Holder shall be deemed to be the holder of the shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.

2.2Limitation on Exercise. Notwithstanding the provisions of this Warrant, the Securities Purchase Agreement or of the other Transaction Agreements, in no event (except (i) as specifically provided in this Warrant as an exception to this provision, (ii) during the forty-five (45) day period prior to the Expiration Date, or (iii) 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 exercise this Warrant, or shall the Company have the obligation to issue shares upon such exercise of all or any portion of this Warrant to the extent that, after such exercise 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 unexercised portion of the Warrants or other rights to purchase Common Stock or through the ownership of the unconverted portion of convertible securities), and (2) the number of shares of Common Stock issuable upon the exercise of the Warrants 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 exercise). 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 (the “1934 Act”), except as otherwise provided in clause (1) of such sentence. The Holder, by its acceptance of this Warrant, further agrees that if the Holder transfers or assigns any of the Warrants to a party who or which would not be considered such an affiliate, the Warrant issued to such transferee or assignee shall include the provisions of this Section 2.2. 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 exercise of this Warrant.

2.3Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date and the Market Price of the Common Stock as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a “cashless” exercise as contemplated by Section 2.1(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2.3 without any action by the Holder.

2.4Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

(a) “Commencement Date” means the date which is the earlier of (i) sixty-five days after the Closing Date, or (ii) the Effective Date.

(b) “Expiration Date” means the date which is the last calendar day of the month in which the third anniversary of the Effective Date occurs.

3.Reservation of Shares. The Company hereby agrees that, at all times during the term of this Warrant, there shall be reserved for issuance upon exercise of this Warrant, one hundred percent (100%) of the number of shares of its Common Stock as shall be required for issuance of the Warrant Shares for the then unexercised portion of this Warrant. For the purposes of such calculations, the Company should assume that the outstanding portion of this Warrants was exercisable in full at any time, without regard to any restrictions which might limit the Holder’s right to exercise all or any portion of this Warrant held by the Holder.

4.Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

5.Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

6.Protection Against Dilution and Other Adjustments.

6.1Adjustment Mechanism. If an adjustment of the Exercise Price is required pursuant to this Section 6 (other than pursuant to Section 6.4), the Holder shall be entitled to purchase such number of shares of Common Stock as will cause (i) (x) the total number of shares of Common Stock Holder is entitled to purchase pursuant to this Warrant following such adjustment, multiplied by (y) the adjusted Exercise Price per share, to equal the result of (ii) (x) the dollar amount of the total number of shares of Common Stock Holder is entitled to purchase before adjustment, multiplied by (y) the total Exercise Price before adjustment.

6.2Capital Adjustments. In case of any stock split or reverse stock split, stock dividend, reclassification of the Common Stock, recapitalization, merger or consolidation (where the Company is not the surviving entity), the provisions of this Section 6 shall be applied as if such capital adjustment event had occurred immediately prior to the date of this Warrant and the original Exercise Price had been fairly allocated to the stock resulting from such capital adjustment; and in other respects the provisions of this Section shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. A rights offering to stockholders shall be deemed a stock dividend to the extent of the bargain purchase element of the rights. The Company will not effect any consolidation or merger, unless prior to the consummation thereof, the successor or acquiring entity (if other than the Company) and, if an entity different from the successor or acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the Company are entitled to receive as a result of such consolidation or merger assumes by written instrument the obligations under this Warrant (including under this Section 6) and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire.

6.3Adjustment for Spin Off. If, for any reason, prior to the exercise of this Warrant in full, the Company spins off or otherwise divests itself of a part of its business or operations or disposes all or of a part of its assets in a transaction (the “Spin Off”) in which the Company does not receive compensation for such business, operations or assets, but causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Company, then 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 unexercised Warrants 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 Warrants”) been exercised 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 exercise of all or any of the Outstanding Warrants, 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 amount of the Outstanding Warrants then being exercised, and (II) the denominator is the amount of the Outstanding Warrants.

6.4Adjustment for Certain Transactions. 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 number of shares covered by this Warrant and the Exercise Price shall be adjusted as provided in the applicable provisions of said Section 4(g) of the Securities Purchase Agreement.

7.Transfer to Comply with the Securities Act; Registration Rights.

7.1 Transfer. This Warrant has not been registered under the Securities Act of 1933, as amended, (the “Act”) and has been issued to the Holder for investment and not with a view to the distribution of either the Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act. Each certificate for the Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section. Notwithstanding the foregoing, the Company shall have no obligation to amend any then effective registration statement covering the resale of the Warrant Shares issuable on exercise of the transferred portion of this Warrant to include the transferee as a selling shareholder thereof, if inclusion of the transferee would require a post-effective amendment to such registration statement.

7.2Registration Rights. (a) Reference is made to the Registration Rights Agreement. The Company’s obligations under the Registration Rights Agreement and the other terms and conditions thereof with respect to the Warrant Shares, if any, including, but not necessarily limited to (but limited to the extent contemplated thereby), the Company’s commitment to file a registration statement including the Warrant Shares, to have the registration of the Warrant Shares completed and effective, and to maintain such registration, are incorporated herein by reference.

(b) In addition to the registration rights referred to in the preceding provisions of Section 7.2(a), effective after the expiration of the effectiveness of the Registration Statement as contemplated by the Registration Rights Agreement, the Holder shall have piggy-back registration rights with respect to the Warrant Shares then held by the Holder or then subject to issuance upon exercise of this Warrant (collectively, the “Remaining Warrant Shares”), subject to the conditions set forth below. If, at any time after the Registration Statement has ceased to be effective, the Company participates (whether voluntarily or by reason of an obligation to a third party) in the registration of any shares of the Company’s stock (other than a registration on Form S-8 or on Form S-4), the Company shall give written notice thereof to the Holder and the Holder shall have the right, exercisable within ten (10) Trading Days after receipt of such notice, to demand inclusion of all or a portion of the Holder’s Remaining Warrant Shares in such registration statement. If the Holder exercises such election, the Remaining Warrant Shares so designated shall be included in the registration statement at no cost or expense to the Holder (other than any costs or commissions which would be borne by the Holder under the terms of the Registration Rights Agreement). The Holder’s rights under this Section 7 shall expire at such time as the Holder can sell all of the Remaining Warrant Shares under Rule 144 without volume or other restrictions or limit.

8.Late Delivery of Warrant Shares. Reference is made to Section 5(b) of the Securities Purchase Agreement, the terms of which are incorporated herein by reference.

9.Notices. 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.

10.Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings other than expressly contained herein and therein.

11.Governing Law. This Warrant shall be deemed to be a contract made under 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 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 Warrant and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. 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 the Transaction Agreements.

12.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 or in connection with this Warrant.

13.Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

14.Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

[Balance of page intentionally left blank]

15.Descriptive Headings. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

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)

NOTICE OF EXERCISE OF WARRANT

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 

The undersigned hereby irrevocably elects to exercise the right, represented by the Common Stock Purchase Warrant Series 2007-01, Class A No. 07-01A-__, dated as of _____________________, 20___, to purchase ___________ shares of the Common Stock, $0.001 par value (“Common Stock”), of SKYSTAR BIO-PHARMACEUTICAL COMPANY and tenders herewith payment in accordance with Section 2 of said Common Stock Purchase Warrant, as follows:

o CASH:$__________ = (Exercise Price x Exercise Shares)

Payment is being made by:

o enclosed check

o wire transfer

o other

o CASHLESS EXERCISE [if available pursuant to Section 2.1(b)]:

Net number of Warrant Shares to be issued to Holder :_________*

* based on: Current Market Value - (Exercise Price x Exercise Shares)

Market Price of Common Stock

where:

Market Price of Common Stock [“MP”]=$_______________

Current Market Value [MP x Exercise Shares]=$_______________

It is the intention of the Holder to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on the Holder's right to exercise thereunder. Based on the analysis on the attached Worksheet Schedule, the Holder believes this exercise complies with the provisions of said Section 2.2. Nonetheless, to the extent that, pursuant to the exercise 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 exercise which would result in the issuance of shares consistent with such provision. Any exercise above such amount is hereby deemed void and revoked.

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

If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, the Holder either (1) has previously surrendered the Warrant to the Company or (2) will surrender (or cause to be surrendered) the Warrant 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 Exercise.

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

o via express courier, or

o by electronic transfer

after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

Dated: ______________________

____________________________

[Name of Holder]

By: _________________________

NOTICE OF EXERCISE OF WARRANT

WORKSHEET SCHEDULE

1. Current Common Stock holdings of Holder and Affiliates __________

2. Shares to be issued on current exercise __________

3. Other shares to be issued on other current exercise(s) and other current conversion(s)⁴ __________

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 Stock⁵ __________

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%]

^{____________________________}

⁴Includes shares issuable on conversion of convertible securities (including assumed payment, if relevant, of interest or dividends) or exercise of other rights, including other warrants or options

⁵Based on latest SEC filing by Company.

EX-10.5

FORM OF WARRANT

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

SKYSTAR BIO-PHARMACEUTICAL COMPANY

COMMON STOCK PURCHASE WARRANT

SERIES 2007-01

1.Issuance. In consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by SKYSTAR BIO-PHARMACEUTICAL COMPANY, a Nevada corporation (the “Company”), _____________________________ or registered assigns (the “Holder”) is hereby granted the right to purchase at any time, on or after the Commencement Date (as defined below) until 5:00 P.M., New York City time, on the Expiration Date (as defined below), _________________ Thousand __________ (____________)² fully paid and nonassessable shares of the Company’s Common Stock, $0.001 par value per share (the “Common Stock”), at an initial exercise price per share (the “Exercise Price”) of $1.20 per share, subject to further adjustment as set forth herein. This Warrant is being issued pursuant to the terms of that certain Securities Purchase Agreement, dated as of February 26, 2007 (the “Securities Purchase Agreement”), to which the Company and Holder (or 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 Warrant was originally issued to the Holder of the Holder’s predecessor in interest on _____________, 2007³ (the “Issue Date”).

^{___________________________}

¹Insert unique sequential number for each Warrant.

²Insert number equal to Buyer’s Issue Date Conversion Shares for the Closing Date.

2.Exercise of Warrants.

2.1General.

(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Commencement Date (as defined below). Such exercise shall be effectuated by submitting to the Company (either by delivery to the Company or by facsimile transmission as provided in Section 8 hereof) a completed and duly executed Notice of Exercise (substantially in the form attached to this Warrant Certificate) as provided in the Notice of Exercise (or revised by notice given by the Company as contemplated by the Section headed “NOTICES” in the Securities Purchase Agreement). The date such Notice of Exercise is faxed to the Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, the Holder of this Warrant tenders this Warrant Certificate to the Company within five (5) Trading Days thereafter. The Notice of Exercise shall be executed by the Holder of this Warrant and shall indicate (i) the number of shares then being purchased pursuant to such exercise and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.

(b) The provisions of this Section 2.1(b) shall only be applicable (i) (x) on or after the first anniversary of the Issue Date, and (y) if, and only if, on the Exercise Date there is no effective Registration Statement covering the Warrant Shares (other than during a Permitted Suspension Period, as defined in the Registration Rights Agreement), and (ii) on the Automatic Exercise Date (as defined below), even if there is an effective Registration Statement covering the Warrant Shares on such date. If the Notice of Exercise form elects a “cashless” exercise, the Holder shall thereby be entitled to receive a number of shares of Common Stock equal to (w) the excess of the Current Market Value (as defined below) over the total cash exercise price of the portion of the Warrant then being exercised, divided by (x) the Market Price of the Common Stock. For the purposes of this Warrant, the terms (y) “Current Market Value” shall mean an amount equal to the Market Price of the Common Stock, multiplied by the number of shares of Common Stock specified in the applicable Notice of Exercise, and (z) “Market Price of the Common Stock” shall mean the average Closing Price of the Common Stock for the three (3) Trading Days ending on the Trading Day immediately prior to the Exercise Date.

(c) If the Holder provides on the Notice of Exercise form that the Holder has elected a “cash” exercise (or if the cashless exercise referred to in the immediately preceding paragraph (b) is not available in accordance with its terms), the Exercise Price per share of Common Stock for the shares then being exercised shall be payable, at the election of the Holder, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by the Company at the request of the Holder.

^{___________________________}

³Insert the Closing Date.

(d) Upon the appropriate payment, if any, of the Exercise Price for the shares of Common Stock purchased, together with the surrender of this Warrant Certificate (if required), the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The Company shall deliver such certificates representing the Warrant Shares in accordance with the instructions of the Holder as provided in the Notice of Exercise (the certificates delivered in such manner, the “Warrant Share Certificates”) within three (3) Trading Days (such third Trading Day, a “Delivery Date”) of (i) with respect to a “cashless exercise,” the Exercise Date or the Automatic Exercise Date, as the case may be, or, (ii) with respect to a “cash” exercise, the later of the Exercise Date or the date the payment of the Exercise Price for the relevant Warrant Shares is received by the Company.

(e) The Holder shall be deemed to be the holder of the shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.

2.2Reserved.

2.3Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date and the Market Price of the Common Stock as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a “cashless” exercise as contemplated by Section 2.1(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2.3 without any action by the Holder.

2.4Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

(a) “Commencement Date” means the date which is the earlier of (i) sixty-five days after the Closing Date, or (ii) the Effective Date.

(b) “Expiration Date” means the date which is the last calendar day of the month in which the third anniversary of the Effective Date occurs.

3.Reservation of Shares. The Company hereby agrees that, at all times during the term of this Warrant, there shall be reserved for issuance upon exercise of this Warrant, one hundred percent (100%) of the number of shares of its Common Stock as shall be required for issuance of the Warrant Shares for the then unexercised portion of this Warrant. For the purposes of such calculations, the Company should assume that the outstanding portion of this Warrants was exercisable in full at any time, without regard to any restrictions which might limit the Holder’s right to exercise all or any portion of this Warrant held by the Holder.

4.Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

5.Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

6.Protection Against Dilution and Other Adjustments.

6.1Adjustment Mechanism. If an adjustment of the Exercise Price is required pursuant to this Section 6 (other than pursuant to Section 6.4), the Holder shall be entitled to purchase such number of shares of Common Stock as will cause (i) (x) the total number of shares of Common Stock Holder is entitled to purchase pursuant to this Warrant following such adjustment, multiplied by (y) the adjusted Exercise Price per share, to equal the result of (ii) (x) the dollar amount of the total number of shares of Common Stock Holder is entitled to purchase before adjustment, multiplied by (y) the total Exercise Price before adjustment.

6.2Capital Adjustments. In case of any stock split or reverse stock split, stock dividend, reclassification of the Common Stock, recapitalization, merger or consolidation (where the Company is not the surviving entity), the provisions of this Section 6 shall be applied as if such capital adjustment event had occurred immediately prior to the date of this Warrant and the original Exercise Price had been fairly allocated to the stock resulting from such capital adjustment; and in other respects the provisions of this Section shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. A rights offering to stockholders shall be deemed a stock dividend to the extent of the bargain purchase element of the rights. The Company will not effect any consolidation or merger, unless prior to the consummation thereof, the successor or acquiring entity (if other than the Company) and, if an entity different from the successor or acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the Company are entitled to receive as a result of such consolidation or merger assumes by written instrument the obligations under this Warrant (including under this Section 6) and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire.

6.3Adjustment for Spin Off. If, for any reason, prior to the exercise of this Warrant in full, the Company spins off or otherwise divests itself of a part of its business or operations or disposes all or of a part of its assets in a transaction (the “Spin Off”) in which the Company does not receive compensation for such business, operations or assets, but causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Company, then 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 unexercised Warrants 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 Warrants”) been exercised 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 exercise of all or any of the Outstanding Warrants, 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 amount of the Outstanding Warrants then being exercised, and (II) the denominator is the amount of the Outstanding Warrants.

6.4Adjustment for Certain Transactions. 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 number of shares covered by this Warrant and the Exercise Price shall be adjusted as provided in the applicable provisions of said Section 4(g) of the Securities Purchase Agreement.

7.Transfer to Comply with the Securities Act; Registration Rights.

7.1 Transfer. This Warrant has not been registered under the Securities Act of 1933, as amended, (the “Act”) and has been issued to the Holder for investment and not with a view to the distribution of either the Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act. Each certificate for the Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section. Notwithstanding the foregoing, the Company shall have no obligation to amend any then effective registration statement covering the resale of the Warrant Shares issuable on exercise of the transferred portion of this Warrant to include the transferee, as a selling shareholder thereof, if inclusion of the transferee would require a post-effective amendment to such registration statement.

7.2Registration Rights. (a) Reference is made to the Registration Rights Agreement. The Company’s obligations under the Registration Rights Agreement and the other terms and conditions thereof with respect to the Warrant Shares, if any, including, but not necessarily limited to (but limited to the extent contemplated thereby), the Company’s commitment to file a registration statement including the Warrant Shares, to have the registration of the Warrant Shares completed and effective, and to maintain such registration, are incorporated herein by reference.

(b) In addition to the registration rights referred to in the preceding provisions of Section 7.2(a), effective after the expiration of the effectiveness of the Registration Statement as contemplated by the Registration Rights Agreement, the Holder shall have piggy-back registration rights with respect to the Warrant Shares then held by the Holder or then subject to issuance upon exercise of this Warrant (collectively, the “Remaining Warrant Shares”), subject to the conditions set forth below. If, at any time after the Registration Statement has ceased to be effective, the Company participates (whether voluntarily or by reason of an obligation to a third party) in the registration of any shares of the Company’s stock (other than a registration on Form S-8 or on Form S-4), the Company shall give written notice thereof to the Holder and the Holder shall have the right, exercisable within ten (10) Trading Days after receipt of such notice, to demand inclusion of all or a portion of the Holder’s Remaining Warrant Shares in such registration statement. If the Holder exercises such election, the Remaining Warrant Shares so designated shall be included in the registration statement at no cost or expense to the Holder (other than any costs or commissions which would be borne by the Holder under the terms of the Registration Rights Agreement). The Holder’s rights under this Section 7 shall expire at such time as the Holder can sell all of the Remaining Warrant Shares under Rule 144 without volume or other restrictions or limit.

8.Late Delivery of Warrant Shares. Reference is made to Section 5(b) of the Securities Purchase Agreement, the terms of which are incorporated herein by reference.

9.Notices. 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.

10.Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings other than expressly contained herein and therein.

11.Governing Law. This Warrant shall be deemed to be a contract made under 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 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 Warrant and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. 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 the Transaction Agreements.

12.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 or in connection with this Warrant.

13.Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

14.Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

[Balance of page intentionally left blank]

15.Descriptive Headings. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

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)

NOTICE OF EXERCISE OF WARRANT

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 

The undersigned hereby irrevocably elects to exercise the right, represented by the Common Stock Purchase Warrant Series 2007-01, Class B No. 07-01B-__, dated as of _____________________, 20___, to purchase ___________ shares of the Common Stock, $0.001 par value (“Common Stock”), of SKYSTAR BIO-PHARMACEUTICAL COMPANY and tenders herewith payment in accordance with Section 2 of said Common Stock Purchase Warrant, as follows:

o CASH:$__________ = (Exercise Price x Exercise Shares)

Payment is being made by:

o enclosed check

o wire transfer

o other

o CASHLESS EXERCISE [if available pursuant to Section 2.1(b)]:

Net number of Warrant Shares to be issued to Holder :_________*

* based on: Current Market Value - (Exercise Price x Exercise Shares)

Market Price of Common Stock

where:

Market Price of Common Stock [“MP”]=$_______________

Current Market Value [MP x Exercise Shares]=$_______________

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

If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, the Holder either (1) has previously surrendered the Warrant to the Company or (2) will surrender (or cause to be surrendered) the Warrant 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 Exercise.

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

9via express courier, or

9by electronic transfer

after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

Dated: ______________________

____________________________

[Name of Holder]

By: _________________________

EX-10.6

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 26, 2007 (this "Agreement"), is made by and between SKYSTAR BIO-PHARMACEUTICAL COMPANY, a Nevada corporation with headquarters located at Rm. 10601, Jiezuo Plaza, No. 4, Fenghui Road South, Gaoxin District, Xian Province, P.R. China (the “Company”), and each entity named on a signature page hereto (each, an “Initial Investor”) (each agreement with an Initial Investor being deemed a separate and independent agreement between the Company and such Initial Investor, except that each Initial Investor acknowledges and consents to the rights granted to each other Initial Investor under such agreement).

WITNESSETH:

WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement of even date herewith between the Initial Investor and the Company (the “Securities Purchase Agreement”; capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement), the Company has agreed to issue and sell to the Initial Investors the Debentures and the Warrants; and

WHEREAS, the Debentures are convertible into shares of Common Stock (the “Conversion Shares”; which term, for purposes of this Agreement, shall include shares of Common Stock of the Company issuable in lieu of accrued interest through the Maturity Date of the Debentures, as that term is defined in and as contemplated by the Debentures) upon the terms and subject to the conditions contained in the Debentures; and

WHEREAS, the Warrant Shares may be issued upon the exercise of the Warrants; and

WHEREAS, to induce the Initial Investor to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), with respect to the Registrable Securities (as defined below);

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investor hereby agree as follows:

1.Definitions.As used in this Agreement, the following terms shall have the following meanings:

“Applicable Conversion Price” means, on the relevant date, the lower of the Voluntary Conversion Price or the Payment Conversion Price.

“Company Counsel” means Richardson & Patel LLP.

“Effective Date” means the date the SEC declares a Registration Statement covering Registrable Securities and otherwise meeting the conditions contemplated hereby to be effective.

“Held Shares Value” means, for shares of Common Stock acquired by the Investor upon a conversion of a Debenture within the thirty (30) days preceding the Restricted Sale Date, but not yet sold by the Investor (“Held Shares”), the principal amount of the Debentures converted into such Conversion Shares; provided, however, that if the Investor effected more than one such conversion during such thirty (30) day period and sold less than all of such shares, the sold shares shall be deemed to be derived first from the conversions in the sequence of such conversions (that is, for example, until the number of shares from the first of such conversions have been sold, all shares shall be deemed to be from the first conversion; thereafter, from the second conversion until all such shares are sold).

“Initial Required Filing Date” means the date as soon as practicable after the Closing Date but no later than the forty-five (45) days after the Closing Date.

“Increased Shares” means the good faith estimate of the number of shares which the Company anticipates will be issuable to the Holder as a result of either or both an adjustment to the Conversion Price resulting from the application of Section 4(g) of the Securities Purchase Agreement.

“Increased Shares Required Filing Date” means, with respect to the filing of any Additional Registration Statement (as defined below) the date which is the later of (i) the date which is thirty (30) days after the Increased Shares Registration Date or (ii) the earliest date the SEC will accept the filing of an Additional Registration Statement.

“Investor” means the Initial Investor and any permitted transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof and who holds Debentures or Registrable Securities.

“Issued Principal Amount” means the original principal amount of the Debentures.

“Other Issuable Shares” means the good faith estimate of the Company of the number of the Increased Shares, which the Company anticipates, as of the date of the filing of the Registration Statement and any amendment thereto, will be issuable to the Holder pursuant to the provisions of the Transaction Agreements.

“Permitted Suspension Period” means one or more periods aggregating not more than forty-five (45) days during any consecutive 12-month period during which the Holder’s right to sell Registrable Securities under the Registration Statement is suspended, provided, however, that each of such periods shall neither (i) be for more than twenty (20) days nor (ii) begin less than ten (10) Trading Days after the last day of the preceding suspension period (whether or not such last day was during or after a Permitted Suspension Period).

“Potential Material Event” means any of the following: (i) the possession by the Company of material information not ripe for disclosure in a registration statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information in the registration statement would be detrimental to the business and affairs of the Company; or (ii) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the registration statement would be materially misleading absent the inclusion of such information.

“Register,” “Registered,” and “Registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the SEC.

"Registrable Securities" means, collectively, the Conversion Shares and the Other Issuable Shares, but does not include any shares of Common Stock which may be sold by the Holder pursuant to Rule 144 without volume or other restrictions or limits.

“Registration Statement” means a registration statement of the Company under the Securities Act covering Registrable Securities on Form SB-2, if the Company is then eligible to file using such form, and if not eligible, on Form S-1 or other appropriate form.

“Required Effective Date” means, initially, the Initial Required Effective Date or the Increased Required Effective Date (as those terms are defined below), as the case may be.

“Required Filing Date” means initially, the Initial Required Filing Date or the Increased Shares Required Filing Date, as the case may be.

“Restricted Sale Date” means the first date, other than a date during a Permitted Suspension Period (as defined below), on which the Investor is restricted from making sales of Registrable Securities pursuant to any previously effective Registration Statement.

“Rule 144" has the meaning ascribed to it in Section 8 hereof.

2.Registration.

(a)Mandatory Registration.

(i)The Company shall prepare and file with the SEC, as soon as practicable after the Closing Date but no later than the Initial Required Filing Date, a Registration Statement registering for resale by the Investor a sufficient number of shares of Common Stock for the Initial Investors to sell the Registrable Securities. Notwithstanding the requirement to register all Registrable Securities, the Company’s obligation to register the Registrable Securities shall initially be satisfied by the registration of the Initial Number of Shares to Be Registered (as defined below). The “Initial Number of Shares to Be Registered” is a number of shares of Common Stock which is at least equal to the sum of (x) the number of shares into which the Debentures and all interest thereon through their respective Maturity Dates would be convertible at the time of filing of such Registration Statement (assuming for such purposes that all Debentures had been eligible to be converted, and had been converted, into Conversion Shares in accordance with their terms, and that all interest was paid in shares, whether or not such eligibility, accrual of interest or conversion had in fact occurred as of such date) based on the Applicable Conversion Price in effect on, or within three (3) Trading Days prior to, the date the Registration Statement is filed (or subsequently amended), and (y) the number of Other Issuable Shares as of the date of the filing of the Registration Statement or any amendment thereto; provided, however, that for purposes of this provision, the Initial Number of Shares to Be Registered in the initial Registration Statement shall not be greater than the number of such shares which the SEC permits to be included in such Registration Statement. Unless otherwise specifically agreed to in writing in advance by a Majority in Interest of the Holders, the Registration Statement (X) shall include only the Registrable Securities, (Y) shall not restrict or limit the prices at which the shares sold by the selling stockholders thereunder may be sold, and (Z) shall also state that, in accordance with Rule 416 and 457 under the Securities Act, it also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Debentures, or issuances of Other Issuable Securities covered by such Registration Statement to prevent dilution resulting from stock splits, stock dividends or similar transactions.

(ii)The Company will use its reasonable best efforts to cause such Registration Statement to be declared effective on a date (the “Initial Required Effective Date”) which is no later than the earlier of (X) five (5) days after oral or written notice by the SEC that it may be declared effective or (Y) ninety (90) days after the Closing Date (unless the SEC provides a full review of the Registration Statement, in which event it will be one hundred twenty (120) days after the Closing Date). Notwithstanding the foregoing, failure to cause the Registration Statement to become effective will be construed as an Event of Default under Section 14(i)(e) of the Debenture held by the Investor; but the foregoing proviso shall not limit or restrict the right of a Holder to declare an Event of Default under the Note if there is a Special Registration Default (as defined in the Debenture.

(iii)If at any time (an “Increased Registered Shares Date”), the number of shares of Common Stock represented by the Registrable Securities, issued or to be issued as contemplated by the Transaction Agreements, exceeds the aggregate number of shares of Common Stock then registered or sought to be registered in a Registration Statement which has not yet been declared effective (it being acknowledged that the date of an adjustment in the Conversion Price pursuant to Section 4(g) of the Securities Purchase Agreement is an Increased Registered Shares Date), the Company shall either

(X) amend the relevant Registration Statement filed by the Company pursuant to the preceding provisions of this Section 2, if such Registration Statement has not been declared effective by the SEC at that time, to register the Increased Number of Shares to Be Registered (as defined below). The “Increased Number of Shares to Be Registered” is a number of shares of Common Stock which is at least equal to (A) the number of shares theretofore issued on conversion of the Debentures (including any interest paid on conversion by the issuance of Conversion Shares) and held by each Holder, plus (B) the sum of (x) the number of shares into which the unconverted Debentures and all interest thereon through their respective Maturity Dates would be convertible at the time of filing of such Registration Statement or amendment (assuming for such purposes that all Debentures, reduced by any previously converted Debentures, had been eligible to be converted, and had been converted, into Conversion Shares in accordance with their terms and that all interest thereon was paid in shares, whether or not such eligibility, accrual of interest or conversion had in fact occurred as of such date) based on the Applicable Conversion Price in effect on, or within three (3) Trading Days prior to, the date the amendment to the Registration Statement is filed, and (y) the number of Other Issuable Shares as of the date of the filing of the Registration Statement or any amendment thereto; provided, however, that for purposes of this provision, the Increased Number of Shares to Be Registered shall not be greater than the number of such shares which the SEC permits to be included in the amended Registration Statement or the Additional Registration Statement, defined below), or

(Y) if such Registration Statement has been declared effective by the SEC at that time, file with the SEC an additional Registration Statement (an “Additional Registration Statement”) to register the number of shares equal to the excess of the Increased Number of Shares to Be Registered (where the number of shares determined by clause (x) is based on the Applicable Conversion Price in effect on, or within three (3) Trading Days prior to, the date the additional Registration Statement (or any amendment thereto) is filed, over the aggregate number of shares of Common Stock already registered. The Company shall prepare and file the Additional Registration Statement by the Increased Shares Required Filing Date.

The Company will use its reasonable best efforts to cause such Registration Statement to be declared effective on a date (each, an “Increased Required Effective Date”) which is no later than (q) with respect to a Registration Statement under clause (X) of this subparagraph (iii), the Initial Required Effective Date and (r) with respect to an Additional Registration Statement, the earlier of (I) five (5) days after notice by the SEC that it may be declared effective or (II) sixty (60) days after the Increased Shares Required Filing Date, unless the SEC provides a full review of the Additional Registration Statement, in which event it will be ninety (90) days after the Increased Shares Required Filing Date.

(iv)Anything in this Agreement or any other Transaction Agreement to the contrary notwithstanding, the Company agrees to file a registration statement (a “Warrant Share Registration Statement”) to register the resale of Warrant Shares (including shares issuable on exercise of any Added Warrants) as promptly as possible after (x) all of the Conversion Shares and Other Registrable Shares have been registered (or as part of a Registration Statement covering the balance of such shares) or (y) the SEC indicates a policy which would allow for such shares to be registered contemporaneously with any other shares registered under the same or a different registration statement and to use its best efforts to have such Warrant Share Registration Statement declared effective as soon as practicable thereafter.

(v)Shares included in a registration statement contemplated by this Agreement shall be allocated among the Investors, if more than one, based on their respective Buyer’s Allocable Shares.

(b)Payments by the Company.

(i)If the Registration Statement or an Additional Registration Statement covering the Registrable Securities is not filed as contemplated by this Agreement with the SEC by the relevant Required Filing Date, the Company will make payment to the Initial Investor in such amounts and at such times as shall be determined pursuant to this Section 2(b).

(ii)If the Registration Statement covering the Registrable Securities is not effective by the relevant Required Effective Date or if there is a Restricted Sale Date, then the Company will make payments to the Initial Investor in such amounts and at such times as shall be determined pursuant to this Section 2(b).

(iii)The amount (the “Periodic Amount”) to be paid by the Company to the Initial Investor shall be determined as of each Computation Date (as defined below) and such amount shall be equal to the Periodic Amount Percentage (as defined below) of the Issued Principal Amount of all Debentures, for the period from the date following the relevant Required Filing Date or the Required Effective Date or a Restricted Sale Date, as the case may be, to the first relevant Computation Date, and thereafter to each subsequent Computation Date (each such period, a “Computation Period”). The “Periodic Amount Percentage” means two percent (2) of the Purchase Price of such Issued Principal Amount for each Computation Period (and pro rata for any Computation Period which is less than thirty [30] days). Anything in the preceding provisions of this paragraph (iii) to the contrary notwithstanding, after the relevant Effective Date the Issued Principal Amount shall be deemed to refer to the sum of (X) the principal amount of all such Debentures not yet converted and (Y) the Held Shares Value for such Debentures. By way of illustration and not in limitation of the foregoing, if the Registration Statement is filed on or before the Required Filing Date, but is not declared effective until seventy-five (75) days after the Initial Required Effective Date, the Periodic Amount will aggregate five percent (5%) of the Issued Principal Amount (2% for days 1-30, plus 2% for days 31-60, plus 1% for days 61-75). Anything herein to the contrary notwithstanding Periodic Amounts shall cease to accrue, (1) with respect to any outstanding Debenture, as of the date the Conversion Shares issuable thereunder are no longer Registrable Securities and (2) with respect to Held Shares used in determining the Held Shares Value, if any, as of the date such shares are no longer Registrable Securities.

(iv)Each Periodic Amount, if any, will be payable by the Company in cash or other immediately available funds to the Investor on the third Trading Day after

(A) with respect to Periodic Amounts for Computation Periods ending on or before the relevant Effective Date, (i) the earlier of the Effective Date or the date which is thirty days after the relevant Required Effective Date (each, a “First Specified Periodic Payment Date”) and (ii) if relevant, the last day of each Computation Period after the First Specified Periodic Payment Date, and

(B) with respect to all Periodic Amounts accruing after the Effective Date, the last day of the relevant Computation Period,

in each case, without requiring demand therefor by the Investor.

(v)Notwithstanding the preceding provisions of this Section 2(b), if the Company timely files a Registration Statement or an Additional Registration Statement, which, as may be relevant, complies with the provisions of Section 2(a) of this Agreement and the SEC raises issues relating to the applicability of Rule 415 to the number of shares sought to be registered under such Registration Statement, the provisions regarding the accrual of Periodic Amounts shall be suspended for one full Computation Period from the date of the Company’s receipt of such communication from the SEC.

(vi)The parties acknowledge that the damages which may be incurred by the Investor if the Registration Statement is not filed by the Required Filing Date or the Registration Statement has not been declared effective by a Required Effective Date, including if the right to sell Registrable Securities under a previously effective Registration Statement is suspended or the shares of the Company’s stock are not listed on the Principal Trading Market, may be difficult to ascertain. The parties agree that, subject to the provisions of Section 11(k), the amounts payable pursuant to the foregoing provisions of this Section 2(b) represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of such damages.

(vii)Notwithstanding the foregoing, the amounts payable by the Company pursuant to this provision shall not be payable to the extent any delay in the filing or effectiveness of the Registration Statement occurs because of an act of, or a failure to act or to act timely by the Initial Investor or its counsel or any Holder named as a selling stockholder in the Registration Statement.

(viii)"Computation Date" means (A) the date which is the earlier of (1) thirty (30) days after the Required Filing Date, the Required Effective Date or a Restricted Sale Date, as the case may be, or (2) the date after the Required Filing Date, the Required Effective Date or Restricted Sale Date on which the Registration Statement is filed (with respect to payments due as contemplated by Section 2(b)(i) hereof) or is declared effective or has its restrictions removed or the shares of the Company’s stock are listed on the Principal Trading Market (with respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date which is the earlier of (1) thirty (30) days after the previous Computation Date or (2) the date after the previous Computation Date on which the Registration Statement is filed (with respect to payments due as contemplated by Section 2(b)(i) hereof) or is declared effective or has its restrictions removed or the shares of the Company’s stock are listed on the Principal Trading Market (with respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case may be.

3.Obligations of the Company. In connection with the registration of the Registrable Securities, the Company shall do each of the following:

(a)Prepare promptly, and file with the SEC by any Required Filing Date a Registration Statement with respect to not less than the number of Registrable Securities provided in Section 2(a) above, and thereafter use its reasonable best efforts to cause such Registration Statement relating to Registrable Securities to become effective by the relevant Required Effective Date and keep the Registration Statement effective at all times during the period (the “Registration Period”) continuing until the earlier of (i) the date when the Investors may sell all Registrable Securities under Rule 144 without volume or other restrictions or limits, (ii) the date the Investors no longer own any of the Registrable Securities, which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading;

(b)Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement;

(c)Permit a single firm of counsel designated by the Initial Investors (which, until further notice, shall be deemed to be Krieger & Prager llp, Attn: Ronald Nussbaum, Esq., which firm has requested to receive such notification; each, an “Investor’s Counsel”) to review the Registration Statement and all amendments and supplements thereto a reasonable period of time (but not less than three (3) Trading Days) prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects;

(d)Notify the Placement Agent (with a copy to the Investor’s Counsel) immediately (and, in the case of (i)(A) below, not less than three (3) Trading Days prior to such filing) and (if requested by any such person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a “review” of such Registration Statement; (C) whenever the Company receives (or a representative of the Company receives on its behalf) any oral or written comments from the SEC in respect of a Registration Statement (copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Investor’s Counsel); and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for (A) amendments or supplements to the Registration Statement or Prospectus, (B) additional information not pertaining to the Investors or (C) additional information pertaining to the Investors; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iv) if at any time any of the representations or warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (vi) of the occurrence of any event that to the best knowledge of the Company makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, the Company shall communicate with the Investor’s Counsel with regard to its proposed written responses to the comments contemplated in clause (i)(C) of this Section 3(d), so that, to the extent practicable, the Investor’s Counsel shall have the opportunity to comment thereon;

(e)Unless such filing is publicly available on the SEC’s EDGAR system (via the SEC’s web site at no additional charge), furnish to each Investor and to Investor’s Counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, each preliminary prospectus and prospectus, and each amendment or supplement thereto, and (ii) such number of copies of a prospectus, and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor;

(f)As promptly as practicable after becoming aware thereof, notify each Investor of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and, unless such filing is publicly available on the SEC’s EDGAR system (via the SEC’s web site at no additional charge), deliver a number of copies of such supplement or amendment to each Investor as such Investor may reasonably request;

(g)As promptly as practicable after becoming aware thereof, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time;

(h)As promptly as practicable after becoming aware thereof, notify each Investor who holds Registrable Securities of the fact that the ability of the Investor to sell Registrable Securities under the Registration Statement will soon be unavailable as a result of the impending cessation or expiration of the effectiveness of the Registration Statement, for which notice should be given at least twenty (20) days in advance, except that the Company's obligation under this clause shall be satisfied if the Company has previously given written notice of such date to such Investor and such date has not changed since the date of such written notice.

(i)Comply with Regulation FD or any similar rule or regulation regarding the dissemination of information regarding the Company, and in furtherance of the foregoing, and not in limitation thereof, and notwithstanding anything to the contrary in this Agreement or in any of the other Transaction Agreements, without the prior written consent of the Investor in each instance, not disclose to the Investor any non-public material information regarding the Company;

(j)Notwithstanding the foregoing, if at any time or from time to time after the date of effectiveness of the Registration Statement, the Company notifies the Investors in writing that the effectiveness of the Registration Statement is suspended for any reason, whether due to a Potential Material Event or otherwise, the Investors shall not offer or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of such notice until such Investor receives written notice from the Company that such the effectiveness of the Registration Statement has been restored, whether because the Potential Material Event has been disclosed to the public or it no longer constitutes a Potential Material Event or otherwise; provided,however, that the Company may not so suspend the right to such holders of Registrable Securities during the periods the Registration Statement is required to be in effect other than during a Permitted Suspension Period (and the applicable provisions of Section 2(b) shall apply with respect to any such suspension other than during a Permitted Suspension Period);

(k)Use its reasonable efforts to secure and maintain the designation of all the Registrable Securities covered by the Registration Statement on the Principal Trading Market and the quotation of the Registrable Securities on the Principal Trading Market;

(l)Provide a transfer agent (“Transfer Agent”) and registrar, which may be a single entity, for the Registrable Securities not later than the initial Effective Date;

(m)Cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as the Investors may reasonably request, and, within five (5) Trading Days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the Transfer Agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel, which shall include, without limitation, directions to the Transfer Agent to issue certificates of Registrable Securities(including certificates for Registrable Securities to be issued after the Effective Date and replacement certificates for Registrable Securities previously issued) without legends or other restrictions, subject to compliance with applicable law and other rules and regulations, including, without limitation, prospectus delivery requirements;

(n)Take all other reasonable administrative steps and actions (including the participation of Company counsel) necessary to expedite and facilitate disposition by the Investor of the Registrable Securities pursuant to the Registration Statement; provided, however, that the foregoing does not require that the Company take any steps whatsoever regarding the identification or selection of a broker to sell the Registrable Securities, the identification of buyers of the Registrable Securities, or the negotiation of the sale terms of the Registrable Securities; and

(o)Not file any other registration statement (other than the Registration Statement and amendments thereto and except for (i) registration statements on Form S-8 and post-effective amendments thereto and (ii) post-effective amendments to a registration statement which had been declared effective prior to the Closing Date) during the period commencing on the Closing Date and ending on the Effective Date.

4.Obligations of the Investors. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:

(a)Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company to provide factual information regarding the Investor as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement; and

(b)Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f), (g) or (i) above, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f), (g) or (i), and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

5.Expenses of Registration. All reasonable expenses (other than underwriting discounts and commissions of the Investor) incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company shall be borne by the Company. In addition, a fee for a single counsel for the Investors (as a group and not individually) equal to $5,000 for the review of each Registration Statement and $2,300 for the review of each post-effective amendment to a Registration Statement shall be borne by the Company.

6.Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

(a)To the extent permitted by law, the Company will indemnify and hold harmless each Investor who holds such Registrable Securities, the directors, if any, of such Investor, the officers, if any, of such Investor, and each Buyer Control Person (each, an “Indemnified Party”), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, “Claims”) to which any of them may become subject under the Securities Act, Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being, collectively referred to as “Violations”). Subject to clause (b) of this Section 6, the Company shall reimburse the Investors, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) shall not (I) apply to any Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Indemnified Party expressly for use in connection with the preparation of the Registration Statement, any such amendment thereof or supplement thereto or prospectus, if such prospectus (or supplement or amendment thereto) was timely made available by the Company pursuant to Section 3(b) hereof; (II) be available to the extent such Claim is based on a failure of the Investor to deliver or cause to be delivered the prospectus made available by the Company or the amendment or supplement thereto made available by the Company; (III) be available to the extent such Claim is based on the delivery of a prospectus by the Investor after receiving notice from the Company under Section 3(f), (g) or (i) hereof (other than a notice regarding the effectiveness of the Registration Statement or any amendment or supplement thereto), or (IV) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. The Investor will indemnify the Company and its officers, directors and agents (each, an “Indemnified Party”) against any claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of such Investor, expressly for use in connection with the preparation of the Registration Statement or the amendment or supplement thereto, subject to such limitations and conditions as are applicable to the indemnification provided by the Company pursuant to this Section 6. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.

(b)Promptly after receipt by an Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel satisfactory to the indemnifying party (provided such counsel shall not have a conflict of interest with the Indemnified Party and provided that all defenses available to the Indemnified Party can be maintained without prejudicing the rights of the indemnifying party). In case any such action is brought against any Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such Indemnified Party under this Section 6 for any legal or other reasonable out-of-pocket expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and reasonable out-of-pocket expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel as provided above. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable; provided, however, that the Investor shall not obligated to make any indemnification payment to the Company under this Section 6 unless and until there has been a final adjudication of liability on the part of the Investor.

7.Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation; and (c) except where the seller has committed fraud (other than a fraud by reason of the information included or omitted from the Registration Statement as to which the Company has not given notice as contemplated under Section 3 hereof) or intentional misconduct, contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8.Reports under Securities Act and Exchange Act. With a view to making available to Investor the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit Investor to sell securities of the Company to the public without Registration (“Rule 144”), the Company agrees, subject to the provisions of Section 4 (d) of the Securities Purchase Agreement, to:

(a)make and keep public information available, as those terms are understood and defined in Rule 144;

(b)file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(c)furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon reasonable request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) if not available on the SEC’s EDGAR system, a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without Registration; and

(d)at the request of any Investor holding Registrable Securities (a “Holder”), give its Transfer Agent instructions (supported by an opinion of Company Counsel or other counsel to the Company, if required or requested by the Transfer Agent) to the effect that, upon the Transfer Agent’s receipt from such Holder of

(i) a certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s holding period (as determined in accordance with the provisions of Rule 144) for the shares of Registrable Securities which the Holder proposes to sell (the “Securities Being Sold”) is not less than (1) year and (B) as to such other matters as may be appropriate in accordance with Rule 144 under the Securities Act, and

(ii) an opinion of counsel acceptable to the Company (for which purposes it is agreed that the initial Investor’s Counsel shall be deemed acceptable if not given by Company Counsel) that, based on the Rule 144 Certificate, Securities Being Sold may be sold pursuant to the provisions of Rule 144, even in the absence of an effective Registration Statement,

the Transfer Agent is to effect the transfer of the Securities Being Sold and issue to the buyer(s) or transferee(s) thereof one or more stock certificates representing the transferred Securities Being Sold without any restrictive legend and without recording any restrictions on the transferability of such shares on the Transfer Agent’s books and records (except to the extent any such legend or restriction results from facts other than the identity of the Holder, as the seller or transferor thereof, or the status, including any relevant legends or restrictions, of the shares of the Securities Being Sold while held by the Holder). If the Transfer Agent reasonably requires any additional documentation at the time of the transfer, the Company shall deliver or cause to be delivered all such reasonable additional documentation as may be necessary to effectuate the issuance of an unlegended certificate.

9.Assignment of the Registration Rights. The rights to have the Company register Registrable Securities pursuant to this Agreement and the rights of the Investor under Section 8 hereof shall be automatically assigned by the Investor to any transferee of the Registrable Securities (excluding any transfer of such Registrable Securities by a sale pursuant to an effective Registration Statement or pursuant to Rule 144) or of all or any portion of any unconverted Debentures or, to the extent relevant, to a Warrant Share Registration Statement, shares issued or issuable on exercise of Warrants, but , only if the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, (b) the securities with respect to which such registration rights are being transferred or assigned, and (c) written evidence of the transferee’s assumption of the Investor’s obligations under this Agreement. Notwithstanding the foregoing, the Company shall have no obligation to amend any then effective Registration Statement covering the resale of such transferred Registrable Securities or, to the extent relevant, transferred shares issued on exercise of Warrants or shares issuable on the exercise of transferred Warrants to include the transferee as a selling shareholder of such shares, if inclusion of the transferee would require a post-effective amendment to such Registration Statement.

10.Amendment of Registration Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who represent a Majority in Interest of the Holders as of the relevant date. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.

11.Miscellaneous.

(a)A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

(b)Notices required or permitted to be given hereunder shall be given in the manner contemplated by the Securities Purchase Agreement, (i) if to the Company or to the Initial Investor, to their respective address contemplated by the Securities Purchase Agreement, and (ii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 11(b).

(c)Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

(d)This Agreement shall be governed by and interpreted 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 Agreement 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.

(e)The Company and the Investor 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 Agreement or any of the other Transaction Agreements.

(f)If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(g)Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

(h)All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

(i)The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof.

(j)This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(k)The Company acknowledges that any failure by the Company to perform its obligations under Section 3(a) hereof, or any delay in such performance, whether or not as a result of the Company’s negligence, failure to act or otherwise, could result in loss to the Investors, and the Company agrees that, in addition to any other liability the Company may have by reason of such failure or delay, the Company shall be liable for all direct damages caused by any such failure or delay, unless the same is the result of force majeure. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES.

(l)This Agreement (including to the extent relevant the provisions of other Transaction Agreements) constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

INITIAL INVESTOR:

[Print Name of Initial Investor] 

By:  

Name: 

Title: 

COMPANY:

SKYSTAR BIO-PHARMACEUTICAL COMPANY 

By:  

Name: 

Title: 

EX-10.7

__________, 2007

Skystar Bio-Pharmaceutical Company

Rm. 10601, Jiezuo Plaza, No. 4,

Fenghui Road South

Gaoxin District, Xian Province, P.R. China

Attn: CEO

Re: Restrictions on Share Transfers

Dear Sir:

Reference is made to the Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of February 26, 2007, between Skystar Bio-Pharmaceutical Company (the “Company”) and each of the Buyers named therein. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement.

The undersigned is a Principal (as that term is defined below) of the Company. In such capacity the undersigned Principal has had access to the terms of the Securities Purchase Agreement and the other Transaction Agreements, including but not limited to, the Registration Rights Agreement between the Company and the Buyers.

The term “Principal” is a person who meets any one or more of the following criteria: (A) the undersigned signatory identified as the “Company Principal”; (B) a spouse of the Company Principal (a “Principal’s Spouse”) who, directly or indirectly, holds any shares of Common Stock of the Company, (C) a parent, sibling or child of the Company Principal who resides in the household of the Company Principal or of a Principal’s Spouse (each, a “Principal’s Relative”) and who, directly or indirectly, holds any shares of Common Stock, or (D) any other person or entity, including, without limitation, any for profit or non-profit corporation, partnership and trust, whose voting rights regarding Common Stock of the Company is subject to the direction or control of any of the Company Principal, a Principal’s Spouse, or a Principal’s Relative.

As an inducement to each Buyer’s execution, delivery and performance of the Securities Purchase Agreement, the undersigned Principal hereby agrees as follows:

1.Without the prior written consent of a Majority in Interest of the Holders in each instance, the undersigned Principal and any of its Transferees (as defined below) will not, individually or collectively with any other Principal or any Transferee, sell or otherwise transfer or offer to sell or otherwise transfer any shares of Common Stock directly or indirectly held by such Principal at any time through and including the date which is the Principal’s Lock-up Date (as defined below)¹. The foregoing provisions shall not apply, however, to any (x) sale of shares made in response to a Tender Offer (as defined below) or (y) sale of Excluded Shares (as defined below).

2.The following terms shall have the meanings indicated:

(a)The term “Principal’s Lock-up Date” means the earlier of (i) the date on which the aggregate principal amount of all outstanding Debentures is less than twenty-five percent (25%) of the Aggregate Purchase Price of all Debentures actually issued prior to such date or (ii) subject to the provisions hereof, the date which is the later of the Post Effective Lock-up Date (as defined below) or ninety (90) days after the last date hereafter on which the Company Principal is any one or more of the following: an officer, director or the holder (alone or together with all other Principals signatory to this Agreement) of Beneficial Shares (as defined below) and Excluded Shares which aggregate at least five percent (5%) of the outstanding shares of Common Stock of the Company; provided that this clause (ii) shall only apply for as long thereafter as such Company Principal or any other Principal signatory to this Agreement is not an officer, director or holder (alone or together with the Company Principal and all other Principals signatory to this Agreement) of Beneficial Shares and Excluded Shares which aggregate at least five percent (5%) of the outstanding shares of Common Stock of the Company.

(b)The term “Post Effective Lock-up Date” means the date which is one hundred eighty (180) days after the Effective Date, but not counting for such purposes the days, if any, during which sale of Registrable Securities was suspended after the Effective Date.²

_________________

¹By way of clarification: no shares (with the exception of shares referred to in the last sentence of Section 1) are permitted to be sold by the Principal through and including the Principal’s Lock-up Date.

²By way of illustration: If the sale of Registrable Securities was suspended for ten (10) days in the interim, the applicable Post Effective Lock-up Date will be one hundred ninety (190) days after the Effective Date. If on the 185th day after the Effective Date, the sale of Registrable Securities was suspended again for five (5) days, the Post Effective Lock-up Date will be one hundred ninety-five (195) days after the Effective Date.

(c)The term “Beneficial Shares” means the sum (i) the shares of Common Stock actually held of record, directly or indirectly, by the undersigned, (ii) Fully Vested Shares (as defined below), (iii) shares subject to any other then exercisable warrant, right or option, and (iv) (to the extent such shares were not previously included in any of the preceding provisions of clauses (i), (ii) or (iii) of this paragraph (c), shares subsequently acquired upon the actual exercise of any warrant, right or option held by the undersigned or any other Principal; provided, however, that Excluded Shares shall not be deemed to be Beneficial Shares for purposes of this Agreement.

(d)The term “Fully Vested Shares” means fully vested shares of Common Stock to which a Principal is then entitled pursuant to a stock option or similar plan (which plan was in effect on the date hereof), even though such option or right has not then in fact been exercised.

(e)The term “Excluded Shares” means (i) shares acquired by the Principal in open market transactions, (ii) shares acquired by the Principal directly or by way of conversion of a convertible security or of exercise of a warrant, option or other right, where such shares, convertible security or warrant, option or other right was acquired by the Principal in a financing transaction in which other parties unaffiliated with the Company participated on essentially the same terms as those applicable to the Principal in such transaction, or (iii) shares acquired by the Principal from any other Person who was not bound by a Company Principal’s Agreement at the time of such acquisition by such Principal.

(f)The term “Tender Offer” means an unsolicited tender offer made by one or more third parties for the purchase of at least seventy-five percent (75%) of the Company’s outstanding shares of the Company’s Common Stock.

3.The Company may undertake such measures as it deems reasonable to enforce the provisions of this Agreement and monitor compliance with its terms. The undersigned Principal will cooperate with the Company in connection therewith, including, but not limited to, providing prompt responses to Company inquiries relating to such compliance.

4.The undersigned understands that this agreement is being provided to the Company for the benefit of, and may be enforceable against the undersigned by, each of the Company and each Buyer. Each Buyer is a third party beneficiary of this agreement.

5. In addition to any other damages or remedies that may be appropriate, this agreement of the Principal shall be enforceable by injunction sought by the Company and the Buyers or any one or more of them.

6.The undersigned Company Principal represents to the Company and to each Buyer that the signatories below represent all persons or entities which are Principals on the date hereof.

7.Notwithstanding the foregoing restrictions, the undersigned may, without obtaining the consent of any Buyer, effect a private transfer of all or part of the undersigned’s Common Stock to a third party (each, a “Transferee”), provided the Transferee agrees in writing (which shall be provided to the Company and by the Company to each Buyer) to be bound by all of the terms hereof as if such Transferee were an original signatory hereto (and the provisions of this agreement shall then apply to the undersigned, such Transferee and any other of the undersigned’s Transferees jointly).

8. This agreement may be signed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement.

[Balance of page intentionally left blank]

9. A photocopy of this agreement shall suffice as evidence of its terms and its enforceability against the undersigned.

COMPANY PRINCIPAL:
[Print Name of Company Principal]
By:
	[Signature]

If there are additional Principals, each should sign in one of the spaces below.

Use additional copies of this page if necessary.

	[Print Name of Principal]		[Print Name of Principal]
By:		By:
	[Signature]		[Signature]
Its:		Its:

	[Print Name of Principal]		[Print Name of Principal]
By:		By:
	[Signature]		[Signature]
Its:		Its:

	[Print Name of Principal]		[Print Name of Principal]
By:		By:
	[Signature]		[Signature]
Its:		Its: